Citing the steep climb in gasoline prices, the Internal Revenue Service announced on Monday an increase in the optional standard mileage rates for the final four months of 2005.
The rate--which is the amount employers may deduct for the reimbursement of employees who use their own cars for company business--will increase to 48.5 cents a mile for all business miles driven between Sept. 1 and Dec. 31, 2005, the IRS said. That's an increase of 8 cents from the 40.5 cent rate in effect for the first eight months of this year.
The IRS normally updates the mileage rates once a year (in the fall, for the next calendar year), but events have prompted the agency to step out of its routine, officials said.
"This is about fairness for taxpayers," IRS Commissioner Mark W. Everson said. "People are entitled to deduct the real cost of operating a vehicle. We've responded to the recent gas price increases by making this special adjustment so taxpayers get the tax benefit they deserve."
"With many predicting a decline in gas prices over coming months," Everson added, "we will hold off on setting the 2006 rate until closer to January," He cautioned that next year's rate could be lower than 48.5 cents.
While gasoline is a major factor in the mileage figure, other items enter into the calculation of mileage rates, such as the price of new vehicles and insurance, the IRS said.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of the extra burden of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
The new four-month rate for computing deductible medical or moving expenses will be 22 cents a mile, up from 15 cents for the first eight months of 2005. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
The annual Revenue Procedure includes limitations on who is not eligible to use the standard mileage rate.