IRS raises mileage rate to 48.5 cents a mile

With record-high gas prices nationwide, the Internal Revenue Service has raised the mileage reimbursement rate from 40.5 cents a mile to 48.5 cents per mile for all business miles driven from Sept. 1 to Dec. 31, 2005.

The General Services Administration can now raise the mileage reimbursement rate for federal employees who drive personal vehicles on government business, but the agency is not required to do so.

The move comes in response to a request from the leader of the National Treasury Employees Union and talk of legislation from Sen. Charles E. Schumer, D-N.Y., to raise the IRS mileage reimbursement rate to 60 cents per mile and requiring GSA to increase its rate to that level for federal employees.

"This is about fairness for taxpayers," said Mark W. Everson, IRS commissioner. "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."

For the first eight months of 2005, the IRS rate was set at 40.5 cents per mile. The special adjustment will be effective only until the end of the year. The 2006 rate, which will also be based on current driving conditions, should be announced within the next three months.

The IRS' rate is based on a study conducted by independent contractor Runzheimer International, which specializes in travel management services and reimbursement programs.

IRS also raised the moving expense rate to 22 cents a mile, but since the rate for providing vehicle services to charitable organizations is set by law, it remains at 14 cents a mile.

Agency officials said in a statement that while fuel is a major factor in determining mileage reimbursement, other variables, such as the price of new vehicles and insurance, also factor in the equation.

"With many predicting a decline in gas prices over coming months, we will hold off on setting the 2006 rate until closer to January," Everson said. "Next year's rate could be lower than 48.5 cents."

Schumer's legislation, which was still being developed, would raise the mileage reimbursement rate for federal employees driving personal vehicles from the current rate of 40.5 cents per mile to 60 cents per mile through Dec. 31, 2006.

In a Sept. 8 letter to his colleagues, Schumer said that while GSA "usually increases its rate to match the IRS' rate, nothing is certain." No one at GSA was available for comment Friday afternoon.

"This part of my bill will prevent federal employees from being reimbursed at 40.5 cents per mile, while private sector employees receive 60 cents," Schumer wrote.

The primary thrust of the legislation is raising the IRS tax deduction rate for automobile travel for business, medical, moving and charity purposes, to 60 cents. The rate for computing tax deductions for medical and moving expenses was 15 cents and 14 cents respectively for driving a personal vehicle while providing charitable services.

NTEU, which initially called for legislation to increase the mileage reimbursement rate earlier this week, welcomed the IRS' move, but said 48.5 cents is inadequate.

"Staggering increases in the price of gas are having serious ripple effects throughout the economy and forcing employees to dip into their own pockets to cover the costs of fuel," said Colleen Kelley, NTEU president. "This is an untenable situation for these workers."

Kelley said the labor union is continuing its support for Schumer's legislation as well as a companion House bill being developed by Rep. John Lewis, D-Ga., ranking member of the House Ways and Means Subcommittee on Oversight.

"An increase of 8 cents a mile, while better than leaving the reimbursement rate untouched, falls far short of what needs to be done to help people who must travel to perform the duties of their jobs," Kelley said.

Under the new 48.5 cent rate, a driver who gets 20 miles to the gallon would be reimbursed $97 for a 10 gallon tank of gas, allowing for about $67 in nonfuel driving expenses per fill up. Under Schumer's plan, that same reimbursement rate would rise to $120.

Schumer cited a AAA Mid-Atlantic figure that he said shows that the true cost of operating an average vehicle at 15,000 miles a year is about 56 cents per mile, including ownership, operating and fuel costs. Schumer says the extra 4 cents in his 60-cents-a-mile proposal are to reflect the recent spike in gasoline prices.

According to AAA Mid-Atlantic, gas prices in Washington are the highest in the country, at $3.34 a gallon, and a number of Exxon gasoline dealers in the Washington area have accused parent company Exxon Mobil of profiteering from the high prices by raising the wholesale of gas to service stations by 24 cents overnight.

AAA spokesman John Townsend said the association's suggested reimbursement rate is based on fuel, normal routine maintenance, tires, insurance, license registration, taxes, depreciation and finance costs for the average vehicle.

A fuel cost calculator on AAA's Web site shows that regional gas prices are highest in the Mid-Atlantic region, averaging $3.18 a gallon, while gas in the Southern and Mountain West regions averages $2.97.

"The question must be asked, can we afford to raise the rate?" Townsend said. "[For] a lot of federal workers, especially those who do delivery and just going to meetings, it can be very costly … It'll be interesting to see if the rest of the Senate embraces this."

Source: AAA Mid-Atlantic's Daily Fuel Gauge Report