Summer Increase to irs Standard Mileage Rate (8/11)

Continuing increases in gas prices this summer have prompted the IRS to increase its optional mileage reimbursement rate mid-year.  Find out what the new rate is and when it took effect.

The Internal Revenue Service (IRS) recently announced an increase to the optional standard auto mileage reimbursement rate for the last six months of 2011. The IRS raised the optional mileage reimbursement rate 4.5 cents to 55.5 cents per mile beginning July 1, up from 51 cents for the first six months of 2011.       The tax agency normally makes changes to the standard auto mileage reimbursement rate in the fall that take effect on January 1 each year. However, on rare occasions, the agency will increase the rate during the year to reflect significant economic changes.  For example, the IRS increased the mileage reimbursement rate by 8 cents in the middle of the year from September to December 2005 to reflect the higher gas prices associated with Hurricane Katrina.  It then lowered the rate in January 2006.  And, in July 2008, the agency again temporarily raised the rate 8 cents from July 2008 to December 31, 2008, to reflect a spike in gas prices.      Normally, the tax agency bases the rate on its annual study of the fixed and variable cost of operating an automobile. This latest 4.5 cent increase is the direct result of increased gas prices. According to the American Automobile Association (AAA), the national average for a gallon of gas in the United States was about $3.71 in mid-June when the increase was announced, compared to just $2.71 a gallon the same time a year ago, and prices are expected to continue to rise throughout the summer.      Note that you are not required to reimburse employees for business use of private vehicles. As a matter of policy, however, most employers choose to do so in recognition of the expense and the wear and tear the extra business miles cause. For convenience, most organizations use the IRS optional mileage allowance.       The allowance permits you to reimburse employees based on a fixed amount per mile to cover the expense of operating personal vehicles while traveling away from home on business. This allowance is the maximum the IRS will allow without requiring substantiation (or documentation) of actual expenses. (If you pay more than the IRS optional mileage allowance, the amount in excess of the optional mileage allowance is treated as income to the employee and is subject to withholding and the payment of employment taxes.)