IRS Increases Mileage Reimbursement Rate Effective July 1

June 24, 2011

Even though gas prices are slowly falling, they are still relatively high. In fact, they are so high that the Internal Revenue Service has agreed to raise the standard mileage rate for operating a vehicle for business purposes from 51 cents to 55.5 cents per mile. The new rate applies to qualifying expenses that are both incurred and reimbursed on or after July 1, 2011. I think most would agree that despite the increase, the IRS will still not be winning any popularity contests.

While there are generally no Pennsylvania laws requiring employers to use the IRS’ rate, there are tax advantages for doing so. The IRS will deem employers who make qualifying reimbursements up to 55.5 cents per mile as meeting their accounting requirements, thus no income reporting or withholding is required for those reimbursements. However, employers need to make sure that their employees have provided adequate proof that the mileage was strictly for business use.

Qualifying employees who are not reimbursed for their business mileage will be able to deduct 55.5 cents per mile on their individual tax returns. However, it is important to remember that the old rate of 51 cents will apply to qualifying miles incurred between January 1, 2011 and June 30, 2011.

As an interesting side note, I found a gas price tracker on the AAA website. According to the tracker, as of the date of this post, the national average for regular gas is $3.601 per gallon. Pennsylvania’s average is slightly higher at $3.639 per gallon. However, at $3.502 per gallon, the average here in Lancaster is almost 10 cents below the national average. 

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including Business Law and Taxation.