For 2017, the IRS’ standard mileage rate drops to 53.5¢ a mile, from 54¢ a mile. You may use the standard mileage rate to reimburse employees who drive their own cars on business or to value employees’ personal use of moderately priced company vehicles that are first made available to employees this year. Warning: The IRS has yet to release the 2017 amounts, but for 2016, the amounts were $15,900 for cars and $17,700 for SUVs. (Notice 2016-79, IRB 2016-52)
Road trip. For employees who drive their own cars on business, the 53.5¢-a-mile rate is a ceiling; you may use a lower per-mile reimbursement rate.
Reimbursements up to 53.5¢ a mile are tax-free, provided employees keep track of their business miles, where they drove, whom they saw and the business they conducted. Electronic expense reports and GPS devices or smartphones equipped with a mileage tracking app that are backed up to a server make this easier.
What’s taxable: reimbursements exceeding 53.5¢ a mile, amounts employees don’t return and amounts paid for miles for which employees don’t keep adequate records.
Example. Ann’s allowance is 65¢ a mile. In May, she receives $325 for 500 business miles to be traveled that month. In June, she proves that she drove 400 business miles. Ann returns $65 for the 100 miles not traveled. The amount deemed accounted for, for the 400 miles, is $214 (400 × 53.5¢), and she doesn’t return the remaining $46. By the first pay period after the pay period in which the 400 miles are accounted for, her employer pays taxes on the $46 as wages.
Tax stop. Employees’ personal use of company vehicles is taxable. The standard mileage rate may be used to value personal use, but if a vehicle’s value exceeds the IRS’ limits, you must use either the general valuation method or lease valuation method to value personal use. First, subtract employees’ substantiated business miles from the total miles driven. The next step depends on your valuation method.
Example. Ben drives a $31,000 company car. Using the annual lease value table for a $31,000 car, $8,250 is the taxable value. If he accounts for 25,000 business miles and 15,000 personal miles: 15,000 ÷ 40,000 = 0.375 × $8,250 = $3,093.75 is the taxable value of his personal use.