The 2017 IRS business mileage deduction rate is out, and businesses must modify their vehicle reimbursement policies to keep expenses to a minimum, while fairly reimbursing business drivers.
The new rate of 53.5 cents is a half-cent drop from last year, marking just the fifth time in 16 years the rate has gone down. Typically, the IRS safe-harbor rate – the standardized per-mile amount individuals and businesses can deduct on their taxes for business-related travel – tends to rise year-over-year – apart from last year’s 3.5 cent decrease.
Low fuel prices are a major factor in the rate’s decrease, but other elements, like rising maintenance costs and insurance premiums, kept the rate from dropping further.
While the IRS standard business mileage rate is an important benchmark across industries, reimbursement is not a one-size-fits-all solution. Variabilities in gas prices, insurance costs, road conditions and more, from cities across the country, should all be considered when selecting business vehicle reimbursement programs. The IRS mileage deduction rate takes many of these variables into account, but reimbursing drivers from high-cost cities like New York the same amount as business drivers in low-cost cities, like Atlanta, doesn’t equate.
Maximizing business vehicle programs in 2017
As the 2017 IRS mileage rate takes effect, it’s important for businesses to evaluate their current business vehicle programs and look for ways to revamp them. Here are four things employers should consider for their business vehicle programs in 2017:
Implement mileage tracking tools: According to a 2016 Workforce Mobility Report, nearly half of businesses track business mileage manually. This unreliable tracking method can lead to unnecessary costs. Through automated mileage tracking and reporting tools, employers can attain better accuracy. Businesses that implement these tools can lower overall mileage while remaining adherent to the IRS rate.
Consider a fixed-and-variable rate (FAVR) program: FAVR programs offer some of the most accurate and defensible reimbursements. Employers choose a vehicle model (or models), as well as set insurance requirements, that fit the needs of their mobile employees. Any employees with personal vehicles that meet business requirements set by the employer, like having auto insurance, are also eligible for reimbursement. Drivers receive a fixed sum based on the model the company sets as a standard, which is designed to cover insurance, taxes, depreciation and registration. Employees are also granted a variable CPM reimbursement scaled to the price of gas locally, which accounts for the cost of fuel, maintenance, oil, tires and other incidental expenses.
Harness business driver risk: Insurance verification is vital when vetting employees for business vehicle programs, however, 46 percent of employers don’t do this. If an uninsured employee gets into an accident while driving for work, a company is left in significant financial risk. Prioritizing risk management can save companies from costly situations.
Manage all of your programs holistically: Every company is unique and every company manages to the unique needs of their employees. Companies may need to implement more than one business vehicle program. To maximize savings and efficiencies, businesses need to devise a unified business vehicle program approach.
By adopting a careful and strategic approach to managing reimbursement, companies can prepare for the new IRS mileage rate and position themselves for considerable cost savings in the new year.