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How the New Standard Mileage Rate Will Affect SMBs

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Quick look: Due to rising gas prices and other economic factors, the Internal Revenue Service (IRS) has announced the standard mileage rate for eligible business trips will increase to 62.5 cents per mile beginning July 1, 2022. Here’s what small- and medium-sized businesses (SMBs) need to know about the upcoming change and how to ensure their mileage deductions are properly tracked this tax year.

The recent rise in gas prices has put a strain on many Americans’ wallets, and important news has arrived for SMB leaders whose employees track their professional mileage.

Starting on July 1, the standard mileage rate (which is used to calculate tax deductions for the use of a vehicle) will increase by 4 cents to 62.5 cents per mile, according to the IRS. It’s important to note that this new rate only applies to trips that take place during the second half of 2022.

The standard mileage rate for medical trips and active-duty military moving will also bump up 4 cents, to 22 cents per mile. However, the rate for charitable organizations will remain unaffected at 14 cents.

2022 Standard Mileage Rates

Purpose 1/1/22 – 6/30/22 7/1/22 – 12/31/22
Business 58.5 62.5
Medical/Moving 18 22
Charitable 14 14


Source:
IRS

What is the standard mileage rate?

Set 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. The federal government and many businesses also use the standard rate as a benchmark to reimburse employees for mileage.

Changing the standard mileage rate mid-year is quite rare. In fact, the IRS typically updates the rates once each fall, to take effect the following calendar year. Since 2008, there have only been three shifts mid-year, all following a spike in gas prices, with the most recent occurring in 2011.

Because this hike is taking effect on July 1, SMB leaders should use the rates found in IRS Notice 2022-03 for any trips occurring between January 1 and June 30, 2022.

Why the hike?

Simply put, gas prices are taking a toll. Around this time in 2021, the national average price of gasoline was $3.08 a gallon, while this year it recently hit a record high of $5 per gallon. The steep jump is due to a combination of high demand for crude oil and low supply.

Fuel oil costs rose an astounding 106.7% year-over-year in May – but it wasn’t the only thing to experience a price spike. Food costs grew 10.2%, shelter costs jumped 5.5%, and inflation increased 8.6%, the highest rise since December 1981.

An action plan for SMBs

For SMBs that use the standard mileage rate, there are three simple steps to keep in mind:

  1. Continue to track mileage and travel dates and double-check that the correct rates apply to each trip.
  2. Trips occurring between January 1 and June 30 must follow the rates found here.
  3. Trips between July 1 and December 31 must follow the new rates listed above (62.5 cents for business, 22 cents for medical/military moving, and 14 cents for charitable organizations).

If you choose not to follow the standard mileage rate, you must continue to maintain detailed records to accurately calculate actual costs come tax time. This includes tracking:

  • The date of the trip
  • The beginning and ending mileage for each trip
  • The business, medical, moving, or charitable purpose for the trip

Fueling up for success

No matter how you deduct your business-related vehicular expenses, a professional employer organization (PEO) can help. A PEO, like ExtensisHR, can help you stay on top of all compliance-related issues and confirm that your tax deductions are correct each year. Better yet, you won’t be left stranded. Our dedicated teams of risk and compliance and tax and payroll experts are always a call, email, or chat away.

Contact the experts at ExtensisHR and let us take the wheel so you can focus on growing your business, not handling HR.

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