“Two years into the pandemic has showcased volatility and fluctuations across vehicle costs, putting a spotlight on business leaders to prioritize managing these costs in a more accurate and fair way for those with anywhere workforces”
The 2022 business mileage standard rate increased by 2.5 cents from the previous year and will go into effect January 1, 2022, which ties the highest safe harbor rate the IRS has ever published since they published a mid-year increase in July 2008.
Trends from 2021 that affect driving costs include:
Fuel prices rocketed up in 2021, representing a 32% year-over-year increase in national average between October 2020 and October 2021 and the highest levels since 2014
Insurance resumed its steady pace of annual increases that was only disrupted in 2020, representing a 24.2% increase in auto insurance premiums since 2011, with accident frequency in 2021 heading towards 2019 levels
Disruptions in the supply chain and constraints like the chip shortage led to depreciation rates remaining low — 70% lower than pre-pandemic levels — with residual values for vehicles likely remaining high
Beyond the individual tax deduction, the IRS business mileage standard rate offers a tax-free threshold for reimbursements that U.S. employers make to employees. Organizations are typically required to reimburse their anywhere workforce for the business use of their mixed-use assets, or personally-owned assets such as vehicles that are required for their jobs. The IRS rate is optimal for low-mileage drivers who travel fewer than 5,000 business miles per year. The standard mileage rate doesn’t account for driving costs that fluctuate based on geography and time of year, meaning businesses that rely on the rate to reimburse mid and high-mileage workers are likely giving reimbursements that do not reflect actual driving costs. By treating all employees’ expenses as the same regardless of location or individual situations, reimbursement using the IRS rate creates winners and losers by over or under reimbursing them for their costs.
“Two years into the pandemic has showcased volatility and fluctuations across vehicle costs, putting a spotlight on business leaders to prioritize managing these costs in a more accurate and fair way for those with anywhere workforces,” said Craig Powell, CEO, Motus. “While some organizations will continue to rely on the IRS business mileage standard, many more realize that a flat reimbursement policy leads to wasted spend and potential corporate liability. By embracing personalized methodologies that factor in myriad components to total vehicle costs, businesses and their anywhere workforces realize hundreds of thousands of dollars in savings while remaining compliant with federal and state labor laws.”
The fixed and variable rate (FAVR) methodology was designed to more accurately and fairly reimburse employees for the exact cost of driving for work and is paid tax-free under IRS Revenue Procedure 2019-46. Motus calculates that organizations have saved more than $1.4 billion using FAVR reimbursement compared to the IRS business mileage standard since 2011.