Tax season 2023: What exactly is the mileage rate? There's more than one.
Susan Tompor
7 min read
Gas prices at the pump took one crazy trip in 2022 – and it's going to add another layer of complexity for those who claim mileage deductions on their 2022 tax returns.
What exactly is the standard IRS mileage rate? Important tip: It's not just one number for 2022 federal income tax returns.
An extremely volatile year for gas prices last year drove the Internal Revenue Service to take the unusual step of increasing some mileage rates for the second half of the year beginning in July. A midyear bump doesn't happen very often. The last time the IRS made such a move was back in 2011.
For the 2022 tax year, you're looking at two mileage rates for business use. A rate of 58.5 cents a mile applies to travel from January through June last year, and it's 62.5 cents per mile for trips from July through December.
Just to make things a tad more confusing, the IRS also announced that beginning in January, the standard mileage rate for business use is going up again to 65.5 cents per mile driven for business purposes in 2023. Remember, though, that rate does not apply to your 2022 tax return.
Another good tip: These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
The IRS has announced that the standard mileage rate for business use is going up to 65.5 cents per mile driven for business purposes in 2023.
Who can even take a mileage deduction?
As you're preparing to do your 2022 tax return, keep in mind that getting a tax break for claiming mileage isn't as simple as it used to be .
The IRS business standard mileage rate cannot be used to claim an itemized deduction for unreimbursed employee travel expenses under the Tax Cuts and Jobs Act, which remains in effect through 2025. If you're working for an employer who doesn't reimburse mileage for your travel, you're out of luck.
Taxpayers cannot deduct mileage for their regular moving expenses under the Tax Cuts and Jobs Act of 2017 either.
Taxpayers can claim a deduction for moving expenses if they are members of the armedforces on active duty and are moving under orders to a permanent change of station.
The IRS standard mileage rate is a key benchmark that's used by the federal government and many businesses to reimburse their employees for their out-of-pocket mileage expenses.It's also key at tax time for many, including self-employed individuals, who can claim business mileage on a tax return.
The IRS rate reflects the cost to fill up your tank, as well as other expenses associated with driving for business. The IRS notes: "The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs."
The mileage deduction is often key for those who are running their own businesses.
A self-employed taxpayer who files a Schedule C can use the standard rate to deduct expenses from mileage incurred while doing business.
Besides the standard mileage rate, taxpayers have another option for calculating the deduction – actual expenses.
It is more complex for taxpayers to break down the actual costs for the deduction than to simply use the standard mileage rate. For example, you’d have to figure out what it costs to operate the car or truck for the portion of miles dedicated to business. That means taking into account the cost of insurance, gas, repairs, tires and other expenses.
You can only use one method – the standard mileage rate or the business portion of actual expenses – for the same vehicle.
"Many of my Schedule C clients use the mileage due to its simplicity," said George W. Smith, partner at Andrews Hooper Pavlik PLC in Bloomfield Hills, Michigan. "The only record they need to keep is mileage."
Some clients, he said, still go with actual expenses but that has been decreasing over time.
Mileage can be used by those who are self-employed people in a variety of fields, he said, as well as those who own rental properties and claim mileage for trips for repairs, maintenance, or collecting rent.
As for medical mileage, it’s included with medical expenses Schedule A.
Lower mileage rates apply in different circumstances.
The IRS rate is 18 cents a mile for the first half of 2022 and 22 cents a mile for the second half of 2022 for deductible medical or moving expenses. (The medical or moving expense rate remains at 22 cents a mile for 2023.)
Mileage for medical purposes could be deducted if the transportation costs are mainly for – and essential to – your medical care. You can deduct qualifying medical expenses that exceed 7.5% of your adjusted gross income. And you'll have to itemize deductions – instead of taking the standard deduction – to claim medical expenses. Generally, you need a lot of medical expenses to garner any deduction.
An IRS rate of 14 cents per mile for mileage relating to work for charitable organizations remained at one rate throughout 2022 since that rate is set by statute, and it will remain at 14 cents a mile for 2023.
How prices caused many twists and turns at tax time
Gas prices at the pump shocked drivers from one fill-up to the next throughout much of 2022.
After Russia launched a full-scale invasion of Ukraine in late February of last year , oil prices surged above $100 a barrel for the first time since 2014.
Gas prices reach $5.19 per gallon for regular gasoline at a BP gas station on Jefferson avenue in Detroit on June 2.
The U.S. national average peaked at $5.034 a gallon on June 16, 2022, according to data from GasBuddy.
In early June, the IRS took a fairly unusual step to make a special adjustment and raise the mileage rate by 4 cents a gallon for business travel during the last six months of 2022 because of the surge in gas prices .
Gas prices pulled back to a national average of $3.053 a gallon by Dec. 26, according to GasBuddy. And so far in 2023, we're seeing some relief but are still not edging below $3 a gallon on average.
The U.S. average was $3.386 a gallon as of Jan. 23, according to GasBuddy, up 9.3 cents from the week earlier and up 29.5 cents from a month earlier.
This year isn't expected to offer a smooth ride for drivers. "It could be expensive,” said Patrick De Haan, head of petroleum analysis at GasBuddy, who predicts that the national average could climb above $4 a gallon as early as May.
"Curveballs are coming from every direction," De Haan said.
