The federal government has decreased the allowable per-mile reimbursement for employees who drive their vehicles for business and using their vehicles for medical care and moving expenses.
Employers may reimburse their employees for operating an automobile for business, charitable, medical, or moving expense purposes. They can calculate those reimbursements using a variety of methods including: travel days, miles, or the fixed-rate allowance.
Each year the Internal Revenue Service evaluates the Standard Mileage Rate to determine whether the rate is reasonable based on driving costs and whether the rate should be increased, decreased or remain the same. The IRS takes into account costs such as the price of gasoline and oil and other expenses including insurance and repairs.
New published rates include:
The maximum standard automobile cost under a fixed-and-variable-rate (FAVR) allowance method has decreased from $28,200 for 2015 to $28,000 for 2016 (excluding trucks and vans). The standard cost under a FAVR allowance for trucks or vans has increased from $30,800 for 2015 to $31,000 for 2016.
If the allowance paid to an employee exceeds the amount allowed by the federal government, the excess amount must be reported as wages and is subject to income tax withholding and payment of Social Security, Medicare and federal unemployment taxes.
For more about “Business Use of Car,” visit the IRS website at: https://www.irs.gov/taxtopics/tc510.html or contact the experts at BCN if we can answer your employment questions, including those about employee reimbursement policies and current guidance and legislation.