IRS Increases Mileage Reimbursements in Wake of Katrina

A PENNY HERE, A PENNY THERE...

According to Newsday.com today, in an unparalleled move to match rising fuel prices, the IRS has announced an 8-cent increase in the mileage rate that many companies use as a benchmark for reimbursing employees for the use of vehicles on the job.

The rate moves from 40.5 cents to 48.5 cents per mile these tax-allowable reimbursements for business-use driving, but only between Sept. 1 and the end of the year.

The IRS-designated rate change is not mandated. Some companies may change their mileage reimbursements in step with the IRS; others may offer no additional reimbursement.

IRS Commissioner Mark W. Everson called his agency's move "extraordinary" but "appropriate," and he said: "This is about fairness for taxpayers." ... He said the rate is based on several factors, including vehicle depreciation and maintenance costs, not just gas prices. Also, he said, "With many predicting a decline in gas prices in coming months, we will hold off on setting the 2006 rate until closer to January."

But Sen. Charles Schumer (D-NY), who had been among the IRS' critics for not raising the rate, said the IRS hadn't gone far enough. "The IRS," Schumer said in a statement, "took a good first step ... but more needs to be done." ... The senator said he would press for legislation to raise the rate to 60 cents, and to keep it in effect longer, from Sept. 1 through the end of 2006.

While it is used by many businesses as a guideline, the rate is actually set for the use of individual taxpayers who are not reimbursed for mileage by their employers, and who opt to claim this deductible business expense. This option requires extensive record-keeping, since the deductions must be based on actual expenses.
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