2020 has been a challenging year for many businesses, and the last thing you need on your plate as January approaches is to stress out about tax deductions. If your employees transport packages, deliver food, visit clients all over the country, or do any other sort of work that requires them to drive, you might be overwhelmed by the math that goes into figuring out how much you owe them for their business miles and what reimbursement method to use. That’s why we’ve provided all the basic information you need to make the process as simple as possible.
Read on to learn more about the IRS standard mileage rates over the past several years, update 2021 mileage rates, reimbursement plans based on actual vehicle expenses, and how to save your business as much time and money as possible in the reimbursement process.
What is the standard mileage rate in 2021?
Beginning January 1, 2021 the IRS Standard Mileage Rate for personal car use will be 56 cents per mile for business use (a decrease of 1.5 cents), 16 cents per mile for medical and moving mileage (a decrease of 1 cent), and 14 cents per mile for charitable organization mileage (no change).
Why did the IRS standard mileage rate decrease in 2021?
While a number of factors contribute to changes in the IRS Standard Mileage Rate from year to year, 2020 and the onset of Covid greatly influenced the driving habits across the country. The largest trends impacting the new mileage rate include:
- Lower Fuel Prices: The national average fuel price in 2020 decreased approximately 17% below that of 2019.
- Slower Vehicle Depreciation: Vehicle inventory was highly affected by Covid which greatly slowed, in cases stopped, vehicle production, causing shortages of vehicles. This lack of inventory slowed vehicle depreciation rates by increasing overall residual vehicle values.
- Higher Insurance Premiums: While travel and overall miles driven decreased in 2020, insurance premiums remained high.
Who is eligible for the IRS standard mileage rate deduction?
If you have employees whose responsibilities require them to be on the road, they’ll need to be compensated for the expenses associated with driving. The IRS outlines which workers qualify for reimbursement through the standard business mileage deduction rate in their commuting mileage rules. Employees who need to travel to a location other than their home or workplace for business purposes, travel between two different workplaces, or travel between home and a temporary job site where they will be working for less than a year all qualify under the established guidelines.
Previous years’ standard mileage rates
When trying to understand the change in the IRS Mileage Reimbursement Rate for 2021, the first question you should be asking is, “What is the standard mileage rate in 2020?” As you can see from the chart at the bottom of this page, which documents information officially provided by the IRS, the standard business mileage rate is 57.5 cents per mile this year. This is a mere 0.5 cent decrease from 2019, and the rest of the 2010s have also consistently had rates in the 50s, with rates from one year to the rest never increasing or decreasing by more than 5 cents per mile since the 2008 recession.
IRS Standard Mileage Deduction Rates for 2020 and Previous Years
|2021 Standard Mileage Deduction Rate||56 cents|
|2020 Standard Mileage Deduction Rate||57.5 cents|
|2019 Standard Mileage Deduction Rate||58 cents|
|2018 Standard Mileage Deduction Rate||54.5 cents|
|2017 Standard Mileage Deduction Rate||53.5 cents|
|2016 Standard Mileage Deduction Rate||54 cents|
|2015 Standard Mileage Deduction Rate||57.5 cents|
|2014 Standard Mileage Deduction Rate||51 cents|
|2013 Standard Mileage Deduction Rate||56 cents|
|2012 Standard Mileage Deduction Rate||55.5 cents|
|2011 Standard Mileage Deduction Rate(s)||51 cents
|2010 Standard Mileage Deduction Rate||50 cents|
If you’re curious about the medical mileage rate or charity mileage rate, you can take a peek at the past decade’s trends on the official IRS website to aid in your estimation of the 2021 rates.
Standard mileage rate vs. actual vehicle expenses
Using the standard mileage reimbursement rate isn’t the only option for business owners with mobile employees. If your employees drive a total of 5000 or more business miles a year and meet some other standards set by the IRS, you can choose to employ a Fixed and Variable (FAVR) rate, which reimburses employees for actual vehicle expenses including the cost of gas, insurance, repairs, tolls, parking, and several other factors. You can view the complete list of expenses for which the IRS requires employee reimbursement here.
Most businesses opt for reimbursement based on the standard mileage rate for simplicity’s sake, but this is not always the most financially advisable method. Luckily for you, the decision of whether or not to implement a FAVR plan is now easier than ever thanks to our company mileage reimbursement calculator. Just input some information about your company, and you can determine if a FAVR plan will save you money in a matter of seconds.
Need help weighing your options? Check out Everlance’s free Tax Academy resource. Or, consider getting help from the tax team at Block Advisors. Everlance has partnered with Block Advisors, a team at H&R Block specially trained in self-employed and small business taxes, for a special combined offer. They can walk you through both options, so you can make the best decision.
How to keep IRS compliant mileage reports?
If you decide that a FAVR plan is right for your business, Everlance Teams, the highest-rated company mileage tracking app, can help you customize the reimbursement system that best meets your needs without needlessly taking hours of time out of your busy schedule.
Everlance Teams uses GPS tracking to monitor your employees’ driving, separating business trips from personal trips, to keep accurate logs of deductible miles. The team admin dashboard allows you to view this information, along with individual and team expenses and receipts, all in one convenient place. We’re proud to boast that this organizational system saves the average user a whole two hours a month on accounting.
If you’re ready to keep track of your employees’ business driving records with an app that 85% of users say makes their reports more accurate than ever before, today is the day to sign up for Everlance Teams. It takes no more than seven minutes to get started saving both time and money for the business you work hard to run.