Finance News & Insights

IRS lowers(!) mileage rate: Brace for the backlash

commuter-woes

Start passing out the straws. Whoever draws the short one gets to tell employees how much less you’ll be reimbursing them for every business mile they drive.

Tell A/P to put their helmets on – they’re in for a bumpy ride. IRS just released the standard mileage rate for 2010, and it’s not going to be popular.

Turns out the Service lowered two of the three business mileage rates for 2010.

And not by a penny or two.

Here’s what your company will be able to reimburse employees up to, tax-free, starting January 1:

  • standard mileage rate: 50 cents per mile (down a nickel from this year)
  • medical and moving rate: 16.5 cents per mile (7.5 cents lower), and
  • charitable mileage rate: 14 cents per mile (the lone hold).

At a time when so many people are already strapped financially, telling them they’ll receive even less when they get behind the wheel on company business will not be popular.

So what can you do to soften the blow? Try these three strategies:

  1. Break the news with empathy. After all, finance staffers will be reimbursed at the same lower rate as everybody else. Urge them to be as understanding as possible when they pass the new rate along.
  2. Point them in the right direction. Your company can’t raise the mileage rate, but it can help its employees get the most bang for its soon-to-be-lower buck. One way: Help folks find the gas stations with the lowest prices. http://gasbuddy.com/ is a great online resource.
  3. Offer an alternative. It may not be ideal, but employees can always take the difference between the mileage rate and what you reimburse and deduct it on their personal income taxes. If they really need the extra money, they’ll go through the hassle of keeping track. And many probably don’t realize it’s even an option. So they’ll be grateful to know Finance is looking out for them.
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  • Richard

    Option 3 makes no sense.

    If the company pays more than the IRS rate, the excess becomes taxable income. It is not a deduction. If the company pays less than the IRS allows, the company will take the heat for shorting the employee and even if the employee manages to deduct what the company shorts him, it is not extra money.

  • Plato

    Oh please. The mileage rate was increased when the cost of gasoline was well over $4 a gallon. Now it’s a little over $3. Even if the car gets a crummy 15MPG, at $.50 the owner will still be reimbursed $7.50 per gallon. At 25MPG one can expect $12.50 per gallon. More than enough to cover the gas, insurance and wear and tear. “Staffers” should consider owning vehicles that get good mileage and have a low cost of ownership instead seeing themselves as big shots because they got their MBA at 24 and now expect to be treated like royalty and drive expensive, unreliable exotics, or monsterous SUV’s like Suburbans and Escalades.