The Internal Revenue Service (IRS) has announced the 2020 business mileage standard rate of 57.5 cents, calculated with data provided by Motus.i As the definitive leader in reimbursement solutions for businesses with mobile-enabled workforces, Motus has deep insights into vehicle cost components. Using a consistent methodology each year, the company conducts statistical analysis of data from the prior year in order to advise the IRS on this annual rate – the amount an individual can deduct for business vehicle expenses. The 2020 business mileage standard rate decreased by one-half cent from the previous year and will go into effect January 1, 2020. This is the first time the rate has fallen in three years.
Specific trends factoring into the 2020 IRS business mileage standard rate decrease include:
- Decreases to national average fuel prices throughout the year and increased fuel economy in new vehicles
- Despite lower national accident rates, insurance prices increased slightly due to costly repairs to more expensive vehicle technology and increased labor costs
- A shift in consumer preferences from larger vehicles to smaller ones
- Continued increases in vehicle costs due to advanced electronic safety features and infotainment systems
Beyond individual tax deduction, the IRS business mileage standard rate offers a tax-free threshold that U.S. employers can reimburse up to. While organizations are required to reimburse mobile workers for the business use of their mixed-use assets – personally-owned assets that are required for their jobs such as personally owned vehicles – the IRS rate is optimal for low mileage drivers. Since it doesn’t account for driving costs that fluctuate based on geography and time of year, businesses using the rate to reimburse mid- and high-mileage workers are likely to give reimbursements that do not reflect actual driving costs. By treating all employees’ expenses as the same regardless of location or individual situations, reimbursement using the IRS rate creates winners and losers by over or under reimbursing them for their costs.
“The IRS business mileage standard is a go-to reimbursement method for many businesses and individuals, but it actually wasn’t intended to be a reimbursement rate. It was established as a watermark that companies can’t reimburse over without incurring taxes or defensibly demonstrating the business expense above the safe harbor rate,” said Craig Powell, CEO, Motus. “Business leaders should be especially motivated to understand reimbursement options beyond their company’s standard. When mobile workers drive a high number of business miles through the year, alternate methodologies like FAVR can save hundreds or thousands of dollars for organizations and their drivers alike.”
The fixed and variable rate (FAVR) methodology was designed to more accurately and fairly reimburse employees for the exact cost of driving for work and is paid tax-free under IRS Revenue Procedure 2019-46. Motus calculates that organizations have saved more than $1 billion using FAVR reimbursement compared to the IRS business mileage standard since 2007.
For more information about the IRS business mileage standard rate, mileage reimbursement and vehicle management options, please visit https://resources.motus.com/.
Motus is the definitive leader in solutions for businesses with mobile-enabled workers and fleets of any size. The Motus technology platform simplifies both mileage and mobile device reimbursement with proprietary software that calculates personalized and compliant reimbursements for each employee, while improving employee productivity and reducing the overall costs of mobility. The company’s deep insights, captured across the world’s largest retained pool of drivers, also underpins the annual Internal Revenue Service (IRS) business mileage standard, the amount an individual can deduct for business vehicle expenses. For more information please visit www.motus.com or connect with us on Twitter, Facebook, Instagram or LinkedIn.
i Motus is the parent entity of Runzheimer International