American Payroll Association Compliance Update

Business Standard Mileage Rate Decreases to 53.5¢ in 2017

The IRS has announced that the business standard mileage rate for transportation expenses paid or incurred beginning January 1, 2017, will be 53.5 cents per mile, down 0.5 cents from the 54 cents-per-mile rate in effect during 2016 [Notice 2016-79, released 12-13-16].

The mileage rate may be used to compute the amount to reimburse employees who are using their own cars for business purposes. It may also be used by employers that elect to use the “cents-per-mile” valuation method for purposes of determining the amount that needs to be imputed to an employee’s income for personal use of certain company-owned or leased non luxury vehicles

In addition, the 2017 standard rate for miles driven for medical or moving purposes will decrease to 17 cents per mile, down from the 19 cents-per-mile rate in effect during 2016. Note, however, that the standard mileage rate for operating a passenger car for charitable purposes, which is set by law, will stay at 14 cents per mile in 2017.

Finally, for purposes of computing the allowance under a fixed and variable rate (FAVR) plan, the standard automobile cost may not exceed $27,900 in 2017, down $100 from 2016. A FAVR allowance uses a flat rate or stated schedule that combines periodic fixed and variable rate payments, and it relieves employees of the need to keep a record of their actual expenses

WARNING – Because of the 0.5 cent reduction in the business standard mileage rate and the 2 cent reduction in the moving expense mileage rate, employers reimbursing employees at the 2016 rates need to be mindful of the rate changes. To avoid having to include the extra 0.5 or 2 cents in employees’ income and the accompanying withholding and reporting responsibilities, employers should make sure they change to the 2017 rates for all affected travel on or after January 1, 2017. And remember that business standard miles or moving miles driven in December 2016 that show up on an employee’s expense report in 2017 are governed by the rules applicable to the corresponding 2016 mileage rates.