2022 Mileage Rates and Tax Rules for Business Use of an Automobile
The IRS has announced that the 2022 mileage rate for operating an automobile for business will be 58.5 cents per mile, up from 56 cents per mile in 2021. The business mileage rate is used when an employee drives their personal car for business purposes, as well as when calculating the value of an employee’s personal use of a company car.
Following the Rules for an Accountable Plan
In order for an employee to be reimbursed for business expenses (such as mileage) without incurring taxable income, the reimbursement must be made under an “accountable plan”. Such a plan allows reimbursements to be made without being subject to tax withholding or being reflected on the employee’s Form W-2 at the end of the year. Costs under an accountable plan must follow these three rules:
- Expenses must be related to business, such as visiting customers or traveling to a business meeting while performing services as an employee.
- Accurately documented and reported to the employer in a reasonable and timely fashion. The IRS defines “timely” as within 60 days after the expense was paid or incurred.
- Any excess reimbursements are returned to the employer in a timely manner. In this case, the IRS defines “timely” as returning excess reimbursements within 120 days after the expense was paid or incurred.
Employees are responsible for providing the employer the same type of records and documentation they would give to the IRS if asked to provide additional information on a tax return item. For mileage, this means the employee is expected to keep written track of miles driven for work by providing an expense report, account book, or other backup documentation. For other business expenses, the employee must provide receipts.
The IRS also released standard mileage rates for medical purposes at 18 cents per mile and 14 cents per mile for charitable services. Qualified active-duty members of the Armed Forces can use the 18 cents per mile for moving purposes.
