IRS Mileage Rate Increase Effective July 1

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The increase in fuel costs has prompted a midyear special adjustment by the Internal Revenue Service to modify its optional standard mileage rate for computing the deductible costs of operating an automobile for business purposes and for determining the reimbursed amount of these expenses. Midyear increases in the optional mileage rates are rare - the last time the IRS made such an increase was in 2011.  But as the IRS Commissioner noted, "We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.” 

Starting July 1 and continuing on through December 31, 2022, this rate will be 62.5 cents per mile, a record level which reflects the nationwide skyrocketing prices at the pump.  The current 58.5 cents per mile remains in effect through June 30, 2022. 

Businesses typically use the IRS standard mileage rate as a point of reference for reimbursing employees for the work-related use of their vehicles. Other options for employers are available so long as they comply with section 2802 of the Labor Code which mandates that employees be reimbursed for “all necessary expenditures or losses incurred by the employee.”  California courts and labor agencies have declared that the IRS standard mileage rate fulfills this employer obligation.  Keep in mind, this reimbursement is not taxed.  Failing to pay employees for business related expenses is a source of class action and Private Attorney General Act (PAGA) liability.  Employers should ensure that its employee reimbursements account for this increase starting July 1, 2022.  If you have questions about reimbursing employees for business related expenses, contact McKague Rosasco LLP.