Call it wonderful, call it hectic, which ever you prefer, it’s that time of year again. Finally, the moment everyone has been waiting for with baited breath. The IRS safe harbor mileage rate has been announced as 54.5 cents. A penny more than this year’s rate of 53.5 cents-per-mile... What, did you think we were talking about the holidays? Okay, maybe this isn’t as exciting as festive cookies and presents. But that doesn’t mean the new IRS mileage reimbursement rate won’t have an impact on your life. What does this change mean for you?
Well, the IRS standard mileage rate, which changes from year to year, is an easy-to-use national vehicle expense calculation. Informed by Runzheimer data and analysis, it is also the maximum tax deductible amount many companies use to reimburse employees for their business travel. Regardless of what role you play at your company, here’s everything you need to know:
You’re a one-man-operation, on the daily grind to make sure you get yours. Your incentive fuels your quality of life, and that’s a strong motivator to make deals happen. The IRS rate is important to you because it determines the amount you can write off for the year on all your business driving. If you do a lot of driving around to see clients or fill orders, this number can be pretty significant. Keeping track of all those miles in mileage logs is important. Since the rate is going up one cent, you can expect a slightly higher deduction when you file your taxes for the 2018 tax year. When you file your taxes for this year (2017), be sure to still use this year’s rate of 53.5 cents. Enjoy the highways with more money in the bank, you road warrior.
You are on the road a lot for your job. Whether it is to visit clients and prospects, service accounts, or visit a worksite, you need to be on the road to be successful. The company you drive for has a business vehicle program to make sure you are properly reimbursed for the driving expenses of your day. What does the change mean to you? We’ll go through each of the typical vehicle policies and the impact the new rate will have on it
Car Allowance: With a car allowance program you receive a monthly flat amount of money for the business use of your vehicle. Because most flat allowances are treated as taxable income, your company may consider moving to the IRS rate so that the payments can be paid without taxation. They might also move to the other Standard Federal Rate, a FAVR plan reimbursement that is also non-taxed.
Mileage Reimbursement: With a mileage reimbursement program, or a cents-per-mile program, you receive a cents-per-mile reimbursement for the miles you travel. This could be the 2018 IRS rate or something lower. As long as this rate is at or below the IRS safe harbor rate, you have nothing to worry about here.
Fixed and Variable Rate: With a Fixed and Variable Rate program, also known as a FAVR program, you are reimbursed for both the fixed costs (insurance, taxes, depreciation, and registration) and variable costs (fuel, maintenance, and tires) of vehicle usage. Again, as long as this is an IRS compliant FAVR program with accurate mileage and business use reporting, you will receive a nontaxed reimbursement, you have nothing to worry about.
Company Car: Well, there’s no reimbursement with a company car program, also known as a fleet vehicle program, you drive a car the company supplies you with. If you drive a company car, you don’t have to worry about this rate. Your company will charge you for your personal usage of the vehicle, but it isn’t impacted by the change.
Your organization could have one or more of the various mileage reimbursement programs in place. We promise it’s less complicate than you think: Businesses with Company Car or Car Allowance programs have nothing to worry about. The new IRS rate will have no impact.
The other two reimbursement programs have a few more intricacies to them. Companies paying a cents-per-mile reimbursement only have a tax consequence if they reimburse more than the IRS optional deduction rate. Just make sure you adjust your policy with new 2018 rate in mind. Organizations with a compliant FAVR program have nothing to worry about with the announcement of the new rate.
It might not be particularly fun, but for the most part, the new IRS safe harbor rate should bring good cheer! The change in the IRS rate certainly has the largest impact on business vehicle programs that are based upon cents-per-mile reimbursement. While participants and company leaders with the company car programs are the least impacted, sole proprietors stand to be the most impacted. If mileage reimbursement and FAVR programs are compliant, participants and company leaders face little impact beyond adjusting rates for the next year. Now you can head into the New Year, prepared for the IRS safe harbor rate change and how it will impact your work on the road.
About the Author
Mike has 20+ years of experience consulting, implementing and supporting professional solutions for Business vehicle reimbursement plans, Mobile Applications, and employee relocations. His long tenure at Runzheimer has made him a trusted expert both externally and internally.More Content by Mike Bassi