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IRS announces 2023 mileage refund rate

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The release of the IRS’s 2023 Standard Mileage Rate reveals that the rate is rising. The new standard mileage rate for 2023 is 65.5 cents per mile.

That’s an increase of 0.3 cents from the 2022 standard mileage rate adjustment that the IRS announced earlier this year as a way to combat inflation and higher gasoline costs.

irs mileage reimbursement rate 2023

IRS Miles Reimbursement Fee 2023

For 2023, the IRS mileage reimbursement rates for businesses, individuals, and other organizations are as follows:

  • 65.5 cents per mile driven for commercial use, 3 cents above the mid-year increase, setting the rate for the second half of 2022.
  • 22 cents per mile traveled for medical or commuting purposes for qualified active-duty members of the Armed Forces, consistent with the mid-year rate increase set for the second half of 2022.
  • 14 cents per mile traveled on behalf of charities; the rate is set by law and remains unchanged from 2022

The IRS goes on to say that this increase applies to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.

An annual study of the fixed and variable costs of operating an automobile is used to set the standard mileage rate for commercial use.

The mid-year surge in 2022

Due to high prices in early to mid-2022, the IRS increased the optional standard mileage rate from July 1, 2022 to December 31, 2022. The increase, which was considerably high, was almost double the increase since the beginning of the year. . It rose 4 cents for professional use and medical assistance, as well as for active members of the Armed Forces. The IRS rarely makes a mid-year increase, with the last one taking place in 2011. This came after House Democrats asked the Internal Revenue Service (IRS) to increase the mileage reimbursement rate.

So who can deduct car expenses on their tax returns?

If you own a business or are self-employed and use your vehicle for business, you can deduct car expenses on your tax return. On the other hand, if you, as a taxpayer, use your car for both business and personal purposes, you will have to share the expenses. The deduction is based on the portion of the mileage used for business.

This is how you calculate car expenses, actual expenses and using the standard mileage rate:

Actual expenses include:

  • Depreciation
  • lease payments
  • gas and oil
  • tires
  • Repairs and tuning
  • Safe
  • registration fees

Using the standard mileage rate

If you are going to use the standard mileage rate for a car you own, you must choose to use this method in the first year that the car is available for use in your business. Then again, if you want to use the standard mileage rate for a car you are renting, you must use it for the entire lease period.

Subsidies and reimbursements for alternative vehicles

If you drive your own car, you can also use the Fixed and Variable Rate Subsidy Plan (FAVR) to receive tax-free reimbursements from your employee for fixed and variable vehicle costs. Fixed costs are things like insurance and taxes and registration fees. Variable costs are expenses such as fuel, tires, and routine maintenance and repairs.

There are some exclusions to this allowance. Your car cannot cost more than the IRS sets a maximum for each year. For example, for 2022, your vehicle could cost upwards of $56,100 for trucks, trucks and vans.

Flat car allowances are another way employers can reimburse their employees for the expenses of running the business. This is a set amount that an employer can provide to its employees to cover the costs of using their own vehicle for business purposes during a certain period.

The amount may vary according to the location, the task and the type of vehicle. However, both parties can agree on a set amount such as $750 for wear and tear, tires and of course fuel cost. Keep in mind that these subsidy payments are taxable unless certain measures are taken. So make sure you find out what the tax obligations of both parties are.

No more tax deductions for employees

Related to management, the IRS no longer accepts business expense deductions from employees. This started in 2018 and runs until 2025 because of the Jobs and Tax Cuts Act (TCJA). According to the IRS, “employees who use their car for work can no longer take a business expense deduction as part of their miscellaneous itemized deductions reported in Exhibit A.”

The agency goes on to say that employees cannot deduct this even if the employer does not reimburse the employee for the use of his or her own car. However, there is an exception for a certain group. Armed Forces reservists, qualified performance artists, and fee-based local or state government officials may still deduct employee unreimbursed travel expenses.

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