Gas prices are at their lowest point in more than four years, yet the Internal Revenue Service has raised the tax break for employees using their vehicles for work in 2015.
The IRS revised its standard business mileage — the amount the federal agency will allow taxpayers to deduct for unreimbursed driving expenses for cars, vans, pickups and panel trucks — to 57.5 cents per mile, up from 56 cents in 2014.
The 2015 rate is the second highest in the tax service’s history. In 2008, record high gas prices drove the rate to 58.5 cents.
The increased deduction is good news for drivers, but puzzling to anybody who has been watching gas prices plummet since September.
Fuel costs only represent a portion of what the IRS considers when it produces mileage rates, said Jennifer Jenkins, western Pennsylvania spokeswoman for the tax service. The IRS relies on a variety of fixed and variable factors.
The government has calculated that it is becoming more expensive for drivers to own, lease, insure and maintain their vehicles. Those increases more than offset fuel savings, at least for now.
IRS mileage rates are based on research from Runzheimer International, a travel management firm in Wisconsin. The government has worked with the company for the past 35 years, said Cris Robinson, research analysis supervisor with Runzheimer.
“Even when your operational costs are going down — that’s the fuel, the maintenance, the tires, the oil, all of those things — the fixed costs are usually a little bit more as far as the annual cost of the vehicle,” Robinson said.
Those fixed costs, which include vehicle depreciation, have been rising steadily since the late 2000s, she said.
Runzheimer does not provide suggested rates to the IRS. The IRS uses the company’s data to set the annual mileage rates, Robinson said.
Though the business mileage rate is going up, the rate that taxpayers can deduct for driving related to medical or moving purposes is going down — to 23 cents from 23.5 cents. That rate is factored using only variable rates, such as gas prices.
In 2015, the mileage rate for charitable activities, which also is calculated separately, is unchanged at 14 cents.
Though falling fuel prices weren’t enough to drive down the business mileage rate this year, Robinson said fuel prices are an important factor in setting rates. That’s reflected in historical business mileage rates, which were set at 9 cents as recently as 1995 before climbing significantly in the following years. An average gallon of gas cost $1.15 in 1995.
Robinson said Runzheimer does not factor speculative statements in its research, so gas price predictions are ignored.
Jenkins noted individuals who claim mileage deductions must be prepared to show documentation for those miles driven — such as mileage logs, event calendars and even work schedules.
“The key thing is that it doesn’t look like they’re coming up with numbers out of thin air,” she said.
While the standard mileage rate is useful for many drivers, it is an imperfect figure. An individual’s actual driving costs might vary — much the same way the standard deduction differs from actual deductible tax expenses — and some drivers might opt to itemize their costs for a more accurate figure.
But for those who don’t want to track and document every business expense, the standard mileage rate is a “safe harbor,” Robinson said.