Federal Mileage Reimbursement

What is the meaning of Federal Mileage Reimbursement? 

Federal mileage reimbursement refers to the amount that can be deducted from an individual’s federal income taxes for the costs of operating an automobile for qualified business, charitable, moving, or medical purposes. The amount of federal mileage reimbursement is based on the miles that a vehicle is driven for the aforementioned purposes. 

Is there another name for Federal Mileage Reimbursement? 

Yes, it is also often called the “standard mileage rate”.

How is the Federal Mileage Reimbursement rate set? 

The Internal Revenue Service (IRS) determines the federal mileage reimbursement rate. It is adjusted yearly and would depend on the study of fixed and variable costs of operating a vehicle for business use. On the other hand, the standard mileage rate for medical and moving purposes is based on variable costs like gas and oil. Finally, the standard mileage rate for a charitable purpose is according to law. 

The IRS uses cost data and analysis by Runzheimer International which is an independent research firm and business vehicle technology and solutions provider. Runzheimer International has been working with the IRS since 1980.  

For 2021, here are the standard mileage rates for the use of a car, van, pickup, or panel truck:

• 56 cents per mile driven for business use, down from the rate of 57.5 cents in 2020.
• 16 cents per mile driven for medical or moving purposes, down from 17 cents in 2020.
• 14 cents per mile driven for charitable purposes, which stayed the same as the rate in 2020.

Are taxpayers required to use the IRS standard mileage rates? 

Even if the rate is set by the IRS, taxpayers are given the option to compute the amount for deduction using the IRS standard mileage rate or base it on actual expenses of driving their vehicle. They have to provide adequate records. 

What are some reminders on Federal Mileage Reimbursement? 

• According to the Tax and Jobs Act, taxpayers are not allowed to claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. 
• Taxpayers are also not allowed to claim a deduction for moving expenses unless they are members of the Armed Forces on active duty who are moving under orders to a permanent change of station. 
• If the standard mileage rate is chosen, leased vehicles must use the standard mileage rate set by the IRS for the duration of the entire lease period, including renewals. 
• In the first year that a car is used for business purposes, taxpayers must use the standard mileage rate from the IRS. After the first year, the taxpayer can choose between the standard mileage rate and actual expenses.