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IRS Issues New Mileage Rates for 2022

New Rates Effective January 1, 2022

2022 Mileage Rates

The Internal Revenue Service has issued the 2022 optional standard mileage rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on January 1, 2022, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 58.5 cents per mile driven for business use, up 2.5 cents from 2021 rates,
  • 18 cents per mile driven for medical, or moving purposes for qualified active-duty members of the Armed Forces, up 2 cents from 2021 rates, and
  • 14 cents per mile driven in service of charitable organizations; the rate is unchanged from 2021.

The IRS mileage rate is a guideline for mobile worker reimbursement because it is the threshold for taxable reimbursement. Employee reimbursements are tax-free as long as a company’s allowance or cents-per-mile reimbursements are not above the annual rate.

4 Factors that Determine the 2022 IRS Mileage Rate

  1. The Price of Gas: While there are more expenses to driving than just fuel costs, gas plays a significant role in calculating the 2022 IRS mileage rate. Fuel can make up nearly 25% of driving costs, and while most of the components of gas prices are typically stable, crude oil prices change daily and are the main influencer of prices at the pump.
  2. Vehicle Costs: As vehicle demand diminished at the height of the pandemic auto manufacturers that remained open scaled back their vehicle production. Now consumer demand for vehicles has returned and exceeded post-pandemic expectations and suppliers have been unable to keep pace. High demand and limited purchasing options have driven new and used vehicle prices to record highs.
  3. Depreciation Rates: Depreciation typically goes up year over year. 2021 was different due to the pricing bubble caused by the supply and demand disparity. Vehicle depreciation remains 70% lower than pre-pandemic levels in 2021, and it will take time for these levels to normalize.
  4. Insurance Rates: While the average cost of vehicle insurance dropped a few percentage points in 2020, insurance rates are making their way back to pre-pandemic levels because more drivers are returning to the road.

While most organizations pay a set monthly car allowance or use the IRS mileage reimbursement rate, another strategy is to use a fixed and variable rate reimbursement, often referred to as FAVR . Talk with your accountant for more details