On June 9, 2022, the Internal Revenue Service (IRS) announced an increase in the standard mileage rate for the second half of 2022. Although this rate usually changes annually in January, this year’s sharp increase in gas prices prompted the mid-year change.
“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” explained IRS Commissioner Chuck Rettig in the press release. “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.”
Effective July 1, 2022, and through the end of the year, the standard mileage rate for business travel will be 62.5 cents per mile, which is a four-cent increase from the 58.5 cent rate that was announced in late 2021. Additionally, the rate for medical and moving purposes will be 22 cents, up four cents from the first half of 2022. The rate for miles driven in service of charitable organizations will remain at 14 cents per mile.
The optional standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. It’s based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.
Under California Labor Code section 2802, employers must fully reimburse employees for all expenses actually and necessarily incurred — which includes reimbursing employees for required use of their personal vehicle. While using the IRS mileage reimbursement rate is optional, many employers typically choose to do so — and both the California courts and the California Division of Labor Standards Enforcement have stated that, absent evidence to the contrary, using the IRS mileage rate will generally satisfy an employer’s obligation to reimburse for business-related personal vehicle expenses.
Employers who use the IRS mileage rate to reimburse employees for business mileage should be ready to apply the higher rate beginning July 1, 2022, and ensure that their expense reimbursement policies are updated to reflect the increased mileage rate.