IRS Lowers Standard Mileage Rate for 2021 to 56 Cents per Mile

Effective Jan. 1, 2021, the optional standard mileage rate used in deducting the costs of operating an automobile for business will be 56 cents per mile, down 1.5 cents from 2020, the IRS announced Dec. 22 in Notice 2021-02.

Businesses often use this amount (also called the safe harbor rate) to pay tax-free reimbursements to employees who use their own vehicles for business.

In addition to the safe harbor rate, however, employers can choose other IRS-permitted reimbursement options.

“It isn’t a big surprise that the IRS business mileage standard dropped to 56 cents per mile,” said Ken Robinson, market research manager at Motus, a mobile workforce management software firm. ”Overall driving costs are significantly lower than they have been in previous years as a result of the COVID-19 pandemic. National fuel prices are on pace to finish [2020] approximately 17 percent below the national average when compared to 2019 due to decreased travel and an oversupply of crude oil. Depreciation rates have also slowed, which was caused in part by vehicle inventory shortages associated with the pandemic production stoppages and has led to increased residual vehicle value.”

Standard Mileage Rate Changes for 2021

For 2021, standard mileage rates for the use of cars, vans, pickups or panel trucks will be:

• 56 cents per mile driven for business use, down from 57.5 cents in 2020.

• 16 cents per mile driven for medical or moving purposes, down from 17 cents.

• 14 cents per mile driven in service of charitable organizations, which remains unchanged.

While the standard mileage rates for business, medical and moving purposes are based on annual changes in the costs of operating an automobile, the charitable rate is set by statute.

“Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates” by providing adequate records, the IRS explained.

Notice 2021-02 also provides that, for cars an employee uses for business, the portion of the standard mileage rate treated as depreciation will be 26 cents per mile for 2021, down from 27 cents per mile in 2020.

Updated Rules (Revenue Procedure 2019-46)

In November 2019, the IRS issued Revenue Procedure 2019-46, which updated standard mileage rules to reflect provisions of the Tax Cuts and Jobs Act (TCJA) that took effect in 2018. The TCJA suspended miscellaneous itemized deductions and deductions for moving expenses, except for members of the armed forces on active duty whose expenses are related to a permanent change of station. The suspension is effective for tax years 2018 through 2025.

The revenue procedure clarifies that during the suspension period, employees may not claim a miscellaneous itemized deduction on their tax returns for parking fees and tolls attributable to their use of an automobile for business.

Unlike W-2 employees, self-employed individuals can still claim a tax deduction for their mileage as a business expense.

They can do so by adding up their business miles for the year and then multiplying that by the standard mileage rate, Perez said. The IRS requires those who are self-employed to keep a mileage log or use a mileage-tracking app if they deduct their business miles, he noted.

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