The IRS calculates annual rates by leveraging data provided by Motus, a workforce reimbursement solutions provider.   -  Photo: Canva/IRS/Motus

The IRS calculates annual rates by leveraging data provided by Motus, a workforce reimbursement solutions provider. 

Photo: Canva/IRS/Motus

On Dec. 18, the Internal Revenue Service (IRS) announced the 2024 business mileage standard rate of 67 cents, set to go into effect on January 1, 2024. 

Annual rates are calculated by leveraging data provided by workforce reimbursement solutions provider Motus, which harnessed data from the pool of retained drivers. By analyzing automotive trends from the preceding year, the IRS determines the annual rate – a benchmark for deducting business vehicle expenses. For over four decades, the cost data and analysis provided by Motus have been the cornerstone of the IRS business mileage standard.

Factors, Trends Impacting Driving Costs

The 2024 business mileage standard rate increased to 67 cents from the 2023 mid-year adjustment of 1.5 cents and will go into effect January 1, 2024. Driving costs have changed in 2023 due to some key factors and trends, including:

  • Decreases in fuel prices: Fuel prices spiked in the summer of 2022 and have fallen more than 20% since that time.
  • Increases to vehicle acquisition costs: Vehicle acquisition costs continue to increase slightly, but not to the extent seen in previous years. While the average cost of a new vehicle is at an all-time high, that cost has only risen about 1.5% year-over-year, which is the lowest increase in the past 7 years.
  • Increases in depreciation: Concerns over inflation, coupled with the high cost of new vehicles and the lingering impact of supply chain issues, have created a higher demand for used vehicles. This results in lower residual values for new vehicles, and the corresponding higher depreciation increases the overall cost of vehicle ownership.

In addition to individual tax deductions, the IRS business mileage standard rate offers a tax-free threshold for reimbursements that U.S. employers make to employees. Organizations are typically required to reimburse their mobile workforce for the business use of the personally owned assets that are necessary to fulfill work-related responsibilities, which includes vehicles.

The IRS rate can be used in a cents-per-mile (CPM) program ideal for low-mileage drivers who travel fewer than 5,000 business miles per year.

For mid- and high-mileage drivers, reimbursements need to account for differences in vehicle ownership and operating costs, which can fluctuate throughout the year and are geographically specific to be compliant. This means businesses that rely on the IRS rate to reimburse mid- and high-mileage workers are likely providing reimbursements that do not reflect actual driving costs.

By treating all employees’ expenses as the same regardless of location or individual situations, reimbursement using the IRS rate creates winners and losers by over or under reimbursing employees for their costs. For these high-mileage drivers, the IRS-recommended method of the Fixed and Variable Rate (FAVR) reimbursement is most appropriate as it provides fair and accurate reimbursements based on the costs of vehicle ownership and fuel costs, localized to the places employees live and work.

Together, a FAVR and CPM program allows companies to provide compliant and fair reimbursement solutions for every driver regardless of annual driving amount.

“As we continue to face economic uncertainty, there are many factors contributing to increased driving costs,” said Phong Nguyen, CEO of Motus in a recent news release. “It’s important for business leaders to prioritize their mobile employees who depend on their cars for work by providing the best reimbursement methodologies for individual costs related to owning and operating a vehicle.”

Originally posted on Automotive Fleet

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