Standard Mileage Rate Decreases in 2016

The IRS has announced that the business standard mileage rate for transportation expenses paid or incurred beginning January 1, 2016, will be 54 cents per mile, down 3.5 cents from the 57.5 cents-per-mile rate in effect during 2015 [Notice 2016-01, released 12-17-15].

The mileage rate may be used to compute the amount to reimburse employees who are using their own cars for business purposes. It may also be used by employers that elect to use the “cents-per-mile” valuation method for purposes of determining the amount that needs to be imputed to an employee’s income for personal use of certain company-owned or leased nonluxury vehicles.

In addition, the 2015 standard rate for miles driven for medical or moving purposes will decrease to 19 cents per mile, down from the 23 cents-per-mile rate in effect during 2015. Note, however, that the standard mileage rate for operating a passenger car for charitable purposes, which is set by law, will stay at 14 cents per mile in 2016.

Finally, for purposes of computing the allowance under a fixed and variable rate (FAVR) plan, the standard automobile cost may not exceed $28,000 in 2016, down $200 from 2015. A FAVR allowance uses a flat rate or stated schedule that combines periodic fixed and variable rate payments, and it relieves employees of the need to keep a record of their actual expenses.

ALERT –Because of the 3.5 cent reduction in the business standard mileage rate and the 4 cent reduction in the moving expense mileage rate, employers reimbursing employees at the 2015 rates need to be mindful of the rate changes. To avoid having to include the extra 3.5 or 4 cents in employees’ income and the accompanying withholding and reporting responsibilities, employers should make sure they change to the 2016 rates for all affected travel on or after January 1, 2016. And remember that business standard miles or moving miles driven in December 2015 that show up on an employee’s expense report in 2016 are governed by the rules applicable to the corresponding 2015 mileage rates.

Source: American Payroll Association  |  2015 © Copyright Payroll Masters

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