It’s a new year and that means new Internal Revenue Service changes to a multitude of tax topics. One of the topics that’ll probably affect your business is mileage. How you track, reimburse, and make sure you have the right rates, is one of those small, but critical, expenses to a growing (and traveling) company.
Starting January 1st, 2016, the standard mileage rate for cars being used for business purposes will be 54 cents per mile, 3.5 cents less than what it was in 2014. The rate for medical or moving purposes will be 19 cents per mile, that is 4 cents less than what it was in 2015. That one may or may not be useful to you depending on if you cover employee’s moving costs. Finally, mileage for charitable organization related driving is staying the same, at 14 cents per mile.
You might be thinking, my company figures out its own mileage reimbursement, does this affect me? If that’s the case, no it does not. The IRS standard is a reimbursement schedule you could use, not have to. This is similar to the standard/itemized deduction you would do on a 1040, standard is easy and itemized is hard. To figure out your actual mileage expenses, total up all of the costs associated with the vehicle (gas, engine checks, oil, driver’s license, license plate tags, etc.) and multiply them by the percentage of the miles used for business purposes vs everything else.
For example, if my total costs of using my car for a year added up to $5,000 and I used 15,000 of 20,000 total miles for business purposes, I should expect to be reimbursed $3,750 ($5,000 x .75).
You might also be thinking, why the variation in rate per mile year after year? These numbers are calculated by estimating the total variable and fixed costs of using an automobile. A huge part of that cost is gas and with gas prices anticipated to stay at these lows, the mileage must reflect those decreasing costs.
Just as a note, it’s completely up to the employer to decide not only what the reimbursement amount will be but even if the company will reimburse employee expenses (though it basically is necessary if you want to attract and keep top talent). Companies could absolutely set their own reimbursement schedules and rates but most, understandably, go with the standards set by the IRS.
What does this mean for hr or payroll people? Well, not much if you use an expense management system (like our awesome partner Expensify). These cloud based solutions allow you to easily update to the newest IRS mandated rates and easily allow for your employees to log, review, and submit their expenses.
Better yet, if you’re using a payroll/hr software that either has an expense management system as a feature of its software or APIs with another software, you don’t have to lift a finger to import those reimbursements into payroll and seamlessly pay your employees. How cool is that!
If you're interested in learning how Dominion and Expensify can help you add, track, and expenses while easily integrating them into payroll, contact us today!