Quick look: The IRS has again announced new standard mileage rates for business, medical, and charitable trips, as well as active-duty military members’ moves. Here’s what SMBs need to know about the 2023 rates, which have increased since the mid-year rate hike in June 2022.
The new year is here, and the standard mileage rate for 2023 is on the rise.
Determined by the IRS, the standard mileage rate is used to calculate the deductible costs of operating a vehicle for business, medical, and charitable trips, as well as during the moves of active-duty military members. The standard rate is optional and can be used instead of manually tracking actual costs. Many businesses, as well as the federal government, use the standard rate to reimburse employees for mileage.
If this news sounds familiar, it’s because the standard mileage rate was raised in June 2022. Mid-year adjustments are rare, but the IRS bumped the rate from 58.5 to 62.5 cents that summer to offset increasing inflation and gas prices.
Standard mileage rate for 2023
On December 29, 2022, the IRS announced that starting on January 1, 2023, the standard mileage rate for business use will increase to 65.5 cents, a 3-cent hike from the summer 2022 adjustment. Employers should also take note of the other 2023 rates:
- 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the armed forces (consistent with the June 2022 increase)
- 14 cents per mile driven in service of charitable organizations (unchanged from 2022)
Per the IRS, these rates apply to electric and hybrid-electric automobiles, as well as gasoline- and diesel-powered vehicles.
2023 Standard Mileage Rates
These rate increases reflect the overall rise in driving costs due to growing gas, vehicle, and maintenance prices. For example, AAA’s annual “Your Driving Costs” report found that the average cost to own and operate a new car in 2022 soared to about $10,728 annually, an 11% year-over-year jump from 2021.
Don’t want to use the standard mileage rate?
While many organizations follow the standard mileage rates described above, doing so is not required.
Employers that do not wish to use the standard mileage rate can instead maintain detailed records of actual transportation costs to help them calculate costs during tax season, including:
- The date of the trip
- The beginning and ending mileage for each trip
- The business, medical, moving, or charitable purpose for the trip
Organizations may also opt to use a Fixed and Variable Rate (FAVR) allowance plan. FAVR permits employees who drive their own vehicles to receive tax-free reimbursements from their employers for fixed vehicle costs (i.e., insurance, taxes, and registration fees) and variable vehicle expenses (i.e., fuel, tires, and routine maintenance and repairs) instead of the standard mileage rate.
Employers who wish to use a FAVR plan must note that the cost of the vehicle may not exceed a certain maximum amount set each year by the IRS. For example, in 2023, the standard automobile cost may not exceed $60,800 for automobiles, trucks, and vans (up from $56,100 in 2022).
Let your PEO take the wheel
Even before considering the time and energy it takes to stay updated on the many laws and regulations affecting small- and medium-sized businesses (SMBs), business owners have enough to do.
A professional employer organization (PEO), like ExtensisHR, has a team of compliance and payroll experts who can help organizations stay compliant—without slowing down.
In addition to tracking standard mileage rates, a PEO’s professionals can:
- Provide comprehensive expertise on risk management, workplace safety, unemployment and workers’ compensation insurance, and more
- Process payroll and confirm tax deductions are correct each year
- And more
Ready to let a PEO manage your compliance so you can put the pedal to the metal in 2023? Contact the experts at ExtensisHR today to get started.