Every year the IRS publishes standard mileage rates to determine tax deductions for vehicle use. Organizations and individuals that use vehicles for business purposes should pay close attention to changes in these rates. This guide will explore how to properly apply the IRS mileage rate in 2025.
What is the current IRS mileage rate?
In 2024 the IRS standard mileage rates are as follows:
- 67 cents per mile for business purposes
- 21 cents per mile for medical purposes, or moving for active duty military
- 14 cents per mile for charitable purposes
The standard business rate determines the tax deductible portion of vehicle use for work purposes. Self-employed workers may deduct business mileage at that rate. Businesses may pay tax-deductible mileage reimbursements at that rate to employees.
How does the IRS calculate mileage rates?
Factors influencing the IRS mileage rate
The IRS calculates the standard business rate based on an annual study of the fixed and variable costs of operating a vehicle. These costs include fuel prices, depreciation, insurance, maintenance, and repairs.
Of these costs, depreciation is the largest factor. The IRS reports in Notice 2024-08 that the portion of the business mileage rate treated as depreciation is 30 cents per mile for 2024. This amount is almost 45% of the total rate.
IRS business mileage rate history
The federal mileage rate provides a reasonable estimate of annual vehicle costs for tax purposes. If nationwide vehicle costs increase and are expected to remain higher, then the rate usually increases. A look at mileage rates over the past five years shows this steady increase:
- 2024: 67 cents per mile
- 2023: 65.5 cents per mile
- 2022: 62.5 cents per mile (July-December)
- 2022: 58.5 cents per mile (January-June)
- 2021: 56 cents per mile
- 2020: 57.5 cents per mile
The year 2022 was unusual because a spike in gas prices occurred. This led the IRS to increase the federal mileage rate mid-year.
What will the 2025 IRS mileage rate be?
The IRS will announce its 2025 rates some time in December. Since 2021, the rate has risen by 11 cents per mile due to increased vehicle-related costs. Because inflation in vehicle-related costs has slowed, it is possible the rate will stay close to the same as the 2024 rate.
At the same time, insurance rates have risen steeply over the past year (by 18.6%). Maintenance and repair costs have risen moderately (by 3.4%). These increased costs could influence the IRS to adjust the rate upward from 67 cents per mile.
Deducting mileage on your tax return
Eligibility for mileage deductions
To qualify for business-related mileage deductions, taxpayers must use their vehicles for self-employment purposes. Employees cannot deduct mileage related to fulfilling tasks assigned by an employer. This deduction remains suspended until 2026.
Personal commuting expenses, such as driving from home to work, are not deductible. However, if a self-employed taxpayer uses their vehicle for business-related tasks, these miles may be deductible. Business-related tasks may include meeting clients, delivering merchandise, or traveling between job sites.
Calculating mileage deductions
To calculate mileage deductions, taxpayers multiply the number of miles driven for eligible purposes by the appropriate IRS mileage rate. For instance, if a taxpayer drove 1,000 miles for business purposes in 2023, they would multiply 1,000 by the 2023 IRS mileage rate of 65.5 cents to determine their deductible amount.
Reimbursing mileage at the IRS rate
Tax-exempt mileage reimbursements
Many businesses use the federal business mileage rate for employee reimbursements. Payments at the IRS business mileage rate or equivalent remain tax-free if part of an accountable plan. IRS Publication 463 lays out rules for tax-exempt plans. Other options include a fixed and variable rate plan (FAVR) or a mileage allowance at the federal rate.
Choosing an accountable mileage plan
Many businesses choose to reimburse with the standard IRS rate because it is simple. Drivers keep track of mileage with an IRS-compliant log and multiply the mileage by the national rate for that year. Other businesses choose FAVR plans because these used localized rates for more accurate payments.
Drawbacks of the IRS business rate
Downsides of paying the standard IRS rate for business reimbursements:
- Tends to overpay and underpay some drivers
- Can be excessive in less expensive regions
- Not well suited for a wide variety of expense needs
Maintaining an IRS-compliant mileage log in 2025
Importance of an accurate mileage log
An accurate mileage log is essential for substantiating mileage deductions in the event of an IRS audit. A compliant log should include the date of each trip, the purpose of the trip, the starting and ending locations, and the total miles driven.
Without a detailed record, taxpayers may risk losing their mileage deductions. Similarly, businesses will risk falling short of criteria for an accountable plan. Both employers and self-employed individuals should carefully follow IRS guidelines.
Tools for tracking mileage
Several tools and apps are available to help maintain an accurate mileage log. These tools can automatically track and record mileage, making it easier to stay compliant with IRS requirements.
mBurse offers mLog, an accurate mobile app with features such as GPS tracking, automatic trip classification, and detailed reports. Employers can provide automated reimbursements with a streamlined approval process. Using an app saves time and reduces errors.
