Reimbursing employees for business use of a personal vehicle is generally based upon mileage.
The current federal rate is $0.575/mile, and starting Jan. 1, 2016 the standard mileage rate will be $0.54/mile. Beginning on Jan. 1, 2016, the standard mileage rates will be:
- Business: $0.54 cents per mile, down from $0.575 cents for 2015
- Medical or Moving Purpose: $0.19 cents per mile driven, down from $0.23 cents for 2015
- Driven in service of Charitable Organizations: $0.14 cents per mile
- Privately Owned Motorcycle: $0.51 per mile, down $0.545 from 2015
- Privately Owned Airplane: $1.17 per mile, down from $1.29 for 2015
- Privately Owned Automobile when Government-furnished Automobile: $0.19 per mile, down from $0.23 from 2015
Related Article: Why Receipt Management Shouldn’t Eat So Much Employee Time
The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.
What it Means for Employers
As an employer this can add up and get expensive pretty fast and you may be overpaying by a lot. For business trips where the driver’s point of departure and/or return is his home rather than place of work, you may deduct “commute” miles. Commute miles is the distance an employee normally travels to get to and from work. Commute miles are typically not a reimbursable business expense. So taking commute miles into consideration can make a big difference in what you pay out.
For example: The distance a district manager of a restaurant chain travels to his office is 16 miles. One day, he has to visit a restaurant that is 12 miles from his house and 20 miles from his office. He goes directly from his house to the store, then continues on to his office. Without considering commute miles, the district manager would be reimbursed for the entire 32 miles.
With commute miles factored in, the distance is reduced to 16 miles – a 50% savings.
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“IRS.gov: 2016 Standard Mileage Rates for Business, Medical and Moving Announced.”
2016 Standard Mileage Rates for Business, Medical and Moving Announced. 17 Dec. 2015. Web.