IRS Mileage Rates for 2022
The IRS issued the 2022 optional standard mileage rates used to calculate the deductible costs of operating an automobile. Effective Jan 1, 2022, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be 58.5 cents per mile driven for business use, up 2.5 cents from the rate for 2021
When to use Cent Per Mile
Reimbursing your employees at the IRS mileage rate as specified above makes sense when you have employees that drive fewer than 5000 miles a year or if you only have 5 or fewer employees who expense miles. CPM reimbursement has its own new set of problems.
- High costs are common because reimbursements depend on employee-generated mileage, so an increase in employee mileage implies higher costs for employers
- Low-mileage drivers are under-reimbursed, while high-mileage drivers are over-reimbursed
What is fixed and variable rate reimbursement (FAVR)
A fixed and variable rate plan reimburses employees by combining a monthly allowance and frequent (weekly/monthly) mileage reimbursement payments.
FAVR is customized to each employee’s location-based expenses and GPS-based reported mileage. This helps smooth out any underpayments or overpayments to low or high-mileage drivers. Ex: an employee driving their car in Los Angeles is bound to be paying more vehicle expenses compared to his co-worker who lives in Cleveland.
A fixed and variable rate allowance comprises two payment types: Fixed payments and Variable payments.
Fixed payment includes depreciation, insurance, registration fees, and taxes.
Variable payment includes operating costs, such as fuel, oil changes, tires, and maintenance.