IRS Increases Standard Mileage Rate for Remainder of 2022

Starting on July 1, the standard mileage rate used to deduct eligible business trips in a vehicle on tax returns increases by 4 cents to 62.5 cents per mile, according to the IRS. The new rate applies to trips during the second half of 2022.

The IRS normally makes updates in mileage rates once a year in the fall for the following calendar year. But given the historically high cost of gas in the past several months, the IRS wanted to take steps to help those who use this rate. These types of changes are rare. There’s been a mid-year shift only three times since 2008, and the last mid-year rate increase occurred in 2011. Each change happened after a spike in gas prices. “The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” IRS Commissioner Chuck Rettig said in a statement.

The mileage rate includes other items in its calculation such as depreciation, insurance, and other fixed and variable costs. This optional business standard milage rate is used by many businesses to calculate deductible costs of operating a vehicle for business use in lieu of tracking actually costs.

Impact on Income Certifications

For income certification purposes, these updated rates are considered when calculating net income from some businesses such as ride-hailing and app-based delivery services. For residents or applicants who may spend time behind the wheel of their car earning money with these apps, they are considered self-employed and their income can be sporadic and dependent on the rates prescribed by the app. For these individuals, transportation costs are deductible as business operating expenses.

These residents have two options for deducting vehicle expenses. They can use the IRS standard mileage rate, or they can deduct their actual expenses for gas, depreciation, and other driving costs. Most people use the standard mileage rate because it’s simpler and requires less recordkeeping. By using this option, one only needs to keep track of how many business miles are driven and not the actual expenses of their car, such as the amount paid for gas.

To figure out the deduction, the resident multiplies business miles driven by the applicable standard mileage rate. Then, the deduction is applied to the driver’s gross income. If the resident chooses the standard mileage rate, he can’t deduct actual car operating expenses such as maintenance and repairs, gasoline and its taxes, oil, insurance, and vehicle registration fees. All of these items are factored into the rate set by the IRS. And you can’t deduct the cost of the car through depreciation because the car’s depreciation is also factored into the standard mileage rate, as are lease payments for a leased car.

The resident must use the standard mileage rate in the first year that he uses a car for business or he is forever prevented from using that method for that car. If he uses the standard mileage rate the first year, he can switch to the actual expense method in a later year, and then switch back and forth between the two methods after that. This rule, however, doesn’t apply to leased cars. If your resident leases his car, he must use the standard mileage rate for the entire lease period if he used this option in the first year.