The standard mileage rate for business travel will increase 4 cents per mile for the last six months of 2022 (IRS Announcement 2022-13). Deductible medical or moving expenses rates will increase from 18 to 22 cents per mile.
The adjustment is often made annually, but to reflect the latest fuel price increases, the IRS issued a rare mid-year announcement, with the last mid-year adjustment occurring in 2011 under similar fuel price surges.
Under the Tax Cuts and Jobs Act of 2017 (TCJA), active-duty military members moving expenses are deductible and eligible for tax-free reimbursement. For non-military employees, employers can still reimburse moving expenses. However, those reimbursements are taxable wage income to the employee, subject to income and employment taxes (including both the employer and employee share of Social Security and Medicare taxes). Employers can take a compensation deduction for those reimbursements.
Accountable Plan Rules
The optional business standard mileage rate can be utilized to determine the deductible costs of using a personal vehicle for business instead of recording actual costs and is often used to calculate the reimbursement to employees. An expense report must be submitted by the employee under an “accountable plan” created by the employer in order for the reimbursement to be tax-free. While accountable plans don’t have to be in writing, they must follow three rules:
- There is a business connection to the expenditure.
- There is adequate accounting by the recipient within a reasonable period of time (60 days is an IRS safe harbor for being a reasonable period of time).
- Excess reimbursements or advances are returned within a reasonable period of time.
Commuting is generally thought of as a personal expense, so tax-free mileage allowances for a personal vehicle commuting to work have never been allowed. Commuting, as defined by the IRS, are the expenses incurred traveling between an individual’s residence and a work site that is not temporary.
While there are tax-free qualified transportation fringe benefits, such as parking, public transit, or commuter highway vehicles up to $280 per month for 2022, mileage reimbursements are not included. This falls under IRC Section 132(f).
The pandemic accelerated remote work. For businesses allowing their workers to work from anywhere, employers must figure out the employee’s “tax home” to sort out business vs. commuting expenses. An employee’s tax home is often considered the entire metropolitan area that includes their primary place of business, which may or may not be in the employee’s personal residence. Criteria for deductibility or tax-free reimbursement of the expense include:
- Reasonable and necessary
- Incurred while away from the employee’s tax home
- Incurred in the pursuit of the employer’s business
MarksNelson’s tax team stays up-to-date on the latest changes coming from the IRS. If your business needs help navigating tax changes, our team is only a phone call away.