The Internal Revenue Service (IRS) has issued new standard mileage rates for operating an automobile for business, charitable, medical or moving purposes in 2021.
The IRS has issued new lower mileage rates for 2021.
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New IRS Mileage Rates
The new IRS mileage rates apply to travel starting on January 1, 2021.
- 56 cents per mile for business purposes
- 16 cents per mile for medical or moving purposes
- 14 cents per mile for charitable purposes
The new mileage rates are down from 57.5 cents per mile for business purposes and 17 cents per mile for medical or moving purposes in 2020. The new mileage rates decreased because of changes in fuel prices, fuel economy and insurance costs.
The portion of the business mileage rate that is attributable to depreciation is 25 cents per mile in 2020, down from 27 cents per mile in 2019.
If an employee’s actual costs of operating a vehicle for business purposes is higher, they can deduct a higher amount if they document the actual expenses.
The IRS sets new mileage rates for business and medical/moving travel annually. The charitable rate is set by law [26 USC 170(i)] and does not change.
What Does the IRS Mileage Rate Cover?
The same rate applies to all automobiles, including cars, vans, pickup trucks and panel trucks.
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The mileage rates include the variable costs of operating a vehicle, such as the cost of gas, oil, tires, maintenance and repairs, as well as the fixed costs of operating the vehicle, such as insurance, registration and depreciation or lease payments.
The mileage rates do not include the cost of parking and tolls.
The mileage rates do not vary by geography.
Taxpayers cannot deduct personal use of a vehicle.
Business Reimbursement
Many businesses use the IRS mileage rates for reimbursing employees for business travel by automobile.
Some colleges base the transportation allowance in the college’s cost of attendance on the business mileage rate and the distance from home to school for commuter students. If public transportation is available, however, they will use the cost of a bus or train pass instead, if it is lower.
Deductibility May Be Limited
Tax Cuts and Jobs Act of 2017 eliminated miscellaneous itemized deductions temporarily through December 31, 2025, preventing taxpayers from claiming a deduction for unreimbursed employee travel expenses. Previously, miscellaneous itemized deductions in excess of 2% of AGI were deductible.
The law also eliminated the deduction for moving expenses through the end of 2025. There is an exception for active duty members of the U.S. Armed Forces who move because of a permanent change of station and members of the Reserves performing services more than 100 miles away from home.
There are also exceptions for state and local government officials who are paid on a fee basis, certain performing artists and elementary and secondary school teachers, who can deduct unreimbursed employee travel expenses as an adjustment to income on Schedule 1 of IRS Form 1040, as opposed to itemized deductions on Schedule A.
Nevertheless, self-employed taxpayers may be able to deduct their mileage as a business expense on Schedule C for sole proprietorships, Schedule K-1 (IRS Form 1065) for partnerships or IRS Form 1120 or IRS Form 1120S for corporations.
Historical IRS Mileage Rates
Source: Mark Kantrowitz