The IRS announced the 2024 business mileage rate, and it has increased for the fourth time in three years. Here's our guide to properly apply that rate to your business needs.
The 2024 business mileage rate has increased to 67 cents per mile, an increase of 1.5 cents per mile from 2023. This modest increase was expected for reasons explained below.
The business mileage rate is not to be confused with the other two standard mileage rates published by the IRS – the charitable mileage rate ($0.14/mile, unchanged) and rate for medical and moving purposes ($.21/mile, a decrease of 1 cent).
The primary purpose of these standardized rates is to give businesses and individuals a way for tax purposes to quantify the value of operating a vehicle. In other words, these rates are primarily designed to be tax deduction tools. However, many organizations use the business rate as a standard reimbursement tool for employees.
The IRS standard business rate was designed to help individuals determine the non-taxable value of vehicle use for business purposes. The 2018 Tax Cut and Jobs Act eliminated this tax deduction for employees until the tax year 2026. Self-employed workers can still use the IRS mileage rate of 67 cents per mile for 2024 (65.5 cents/mile for 2023) to determine the non-taxable value of their business vehicle use and deduct this amount on their tax returns.
For workers who are not self-employed, the IRS business rate is typically used as way to reimburse the business use of a personal vehicle. All reimbursements at the IRS mileage rate or less are considered non-taxable. To properly reimburse an employee using the IRS business rate, it is important to use an approved accounting method.
The simplest accounting method for mileage reimbursement using the IRS rate is to log mileage, report it monthly, and calculate a payment by multiplying the mileage by the current business rate.
An approved mileage log must be timely and include the date, destination, purpose, and mileage for each business trip. Because entering this information manually into a paper log or spreadsheet is tedious, many organizations and self-employed workers now use an automated system.
GPS mileage tracking apps are a popular and secure way to accurately record mileage, trip destination, and dates. The best apps allow this process to proceed hands-free while also maintaining privacy for the employee.
The IRS uses a combination of factors, particularly the average costs of vehicle ownership and operation for the previous year combined with the anticipated costs of the coming year. These costs have been steadily increasing over the past few years, which is why the rate has increased significantly, from 56 cents per mile in 2021 to the current rate of 67 cents per mile in 2024.
Here are some of the cost factors that are used to calculate the rate:
During 2022, which gas prices spiked from March through June, the IRS rate was increased mid-year from $0.585/mile to $0.625/mile. Since that time, prices have settled down from their peak at over $5/gallon to their current average of $3.30/gallon at the end of 2023. Nonetheless, the IRS mileage rate has remained high due to other cost factors.
The price of a new vehicle averaged $45,332 in November of 2023, a 1.9% decrease from one year earlier but 20% higher than four years ago. A current large inventory is softening prices, but the United Auto Workers strike will likely cause a decrease in inventory in 2024, keeping prices high.
The price of used vehicles remains very high, though it has been decreasing steadily throughout 2023. Because used cars are holding their value, depreciation has been minimal over the past three years, making it less of a factor than usual in calculating the cost of owning a vehicle. With used vehicle prices falling now, depreciation may have factored more heavily in the 2024 IRS mileage rate.
One of the largest increases in costs to vehicle owners has been insurance premiums. Insurance rates have increased by 19.2% during the past year, which surely affected the IRS mileage rate calculations for 2024. One cause in the increase is the rapid increases in the cost of repairs.
While the cost of body work increased by 3.7%, vehicle repairs in general increased by 15.1% from October 2022 to October 2023. Maintenance and servicing is also up by 6.6% over one year earlier. All in all, it is not only expensive to purchase a vehicle but increasingly expensive to own and maintain a vehicle.
With vehicle costs increasing overall it is not surprising that the IRS rate increased modestly for 2024. For businesses that pay the IRS mileage rate to employees for vehicle reimbursement purposes, this will be yet another increase in operating costs. There are reasons to question the IRS mileage rate for vehicle reimbursements, however.
The following articles detail the various shortcomings of using standardized mileage rates for reimbursements:
The best alternative to the IRS rate for mileage reimbursement is the fixed and variable rate approach, also known as FAVR. Learn more here: