New Standard Mileage Rates For Reimbursement From IRS For 2014

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The IRS announced its standard mileage rates for 2014, effective January 1. The new rates will be a slight decrease — a half cent — from the 2013 rates for business, medical and moving expenses.

The standard mileage rates for the use of a vehicle such as a car, van, SUV, or pickup will be:

• 56 cents per mile for business miles driven
• 23.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

Small business owners, employees, self-employed individuals, and other taxpayers can use the standard mileage rate to calculate their tax-deductible costs for using a vehicle for business, charitable, medical, or moving purposes.

The IRS points out that these standard mileage rates are "optional."  That means you have the option of using the IRS-designated standard mileage rate for 2014. Or, in the alternative, you may keep track of your actual expenses of operating the vehicle and claim actual expenses instead.

There are some rules limiting when you can use the standard business mileage rates:

• You can claim the standard mileage rate for a maximum of four vehicles used simultaneously.
• You cannot use the standard mileage rate if you’ve already claimed a Section 179 deduction for that vehicle.
• You cannot use the standard business mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS).

A frequent question that comes up is "If my employees use their personal vehicles to run business errands or do work for the business, do I have to reimburse the employee at the standard mileage rate?"

In most states you do not have to reimburse expenses to employees — but most employers do so, using the standard mileage rate.  The business can then deduct as a business expense the amount reimbursed to the employee, up to the standard mileage rate.

Of course, any reimbursement to the employee should not be treated as taxable income to the employee. The idea is that you simply are making the employee whole by reimbursing him or her for using a personal vehicle.

If you do not reimburse your employee for business use of a personal vehicle, then the employee may be able to deduct the unreimbursed expense on his or her 1040, Schedule A.  In that case, you as the employer do not get to claim the deduction. 

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