The IRS determines the annual rate, an essential benchmark for deducting business vehicle expenses.  -  Photo: Work Truck

The IRS determines the annual rate, an essential benchmark for deducting business vehicle expenses.

Photo: Work Truck

The Internal Revenue Service (IRS) revealed the 2024 business mileage standard rate of 67 cents, leveraging data provided by Motus, a mobile workforce reimbursement solutions provider.

Motus harnesses data from the world’s largest pool of retained drivers. By analyzing automotive trends from the preceding year, the IRS determines the annual rate — an essential benchmark for deducting business vehicle expenses.

For over four decades, the cost data and analysis provided by Motus have been the cornerstone of the IRS business mileage standard.  

Factors That Changed Driving Costs

The 2024 business mileage standard rate increased to 67 cents from the 2023 mid-year adjustment of 1.5 cents and will go into effect January 1, 2024.

Driving costs have changed in 2023 due to some key factors and trends, including:  

  • Decreases in fuel prices: Fuel prices spiked in summer of 2022 and have fallen more than 20% since that time.  
  • Increases to vehicle acquisition costs: Vehicle acquisition costs continue to increase slightly, but not to the extent seen in previous years. While the average cost of a new vehicle is at an all-time high, that cost has only risen about 1.5% year-over-year, which is the lowest increase in the past 7 years.    
  • Increases in depreciation: Concerns over inflation, coupled with the high cost of new vehicles and the lingering impact of supply chain issues, have created a higher demand for used vehicles. This results in lower residual values for new vehicles, and the corresponding higher depreciation increases the overall cost of vehicle ownership.  

Fine-Tuning Employee Compensation

In addition to individual tax deductions, the IRS business mileage standard rate establishes a tax-free threshold for reimbursements made by U.S. employers to their employees.

Organizations must compensate their mobile workforce for the business use of personally owned assets, such as vehicles, essential for fulfilling work-related responsibilities.

The IRS rate can be applied in a cents-per-mile (CPM) program, designed for low-mileage drivers covering fewer than 5,000 business miles annually.

However, for mid- and high-mileage drivers, reimbursements must consider variations in vehicle ownership and operating costs, which can vary throughout the year and are specific to geographical locations to ensure compliance.

Relying solely on the IRS rate for reimbursing mid- and high-mileage workers may result in providing reimbursements that do not accurately reflect actual driving costs.

Treating all employees' expenses uniformly, irrespective of location or individual circumstances, creates disparities by either overcompensating or undercompensating employees for their expenses.

For high-mileage drivers, the IRS-recommended Fixed and Variable Rate (FAVR) reimbursement method is the most suitable, as it offers fair and accurate reimbursements based on the costs of vehicle ownership and fuel expenses, localized to employees' residential and work areas.

Combining a FAVR and CPM program enables companies to implement compliant and equitable reimbursement solutions for all drivers, regardless of their annual driving mileage.

 

 

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