Unprecedented Increase in Mileage Reimbursement Rate from IRS in Response to Gas Prices: HR.BLR.com Editors Remind Employers of Law’s Requirements

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The Internal Revenue Service (IRS) has taken an unprecedented step: For the final four months of 2005, it has increased the optional standard mileage rateÂ?the amount employers may deduct when they reimburse employees who use their own cars for company business. The boost comes as a reaction to soaring gas prices.

In reaction to soaring gas prices, the Internal Revenue Service (IRS) has taken an unprecedented step: For the final four months of 2005, it has increased the optional standard mileage rate—the amount employers may deduct when they reimburse employees who use their own cars for company business.

Legal editors at HR.BLR.com, the website for human resource professionals, remind employers what else they need to keep in mind regarding mileage.

The IRS announced September 12 that it would allow employers to deduct, without detailed documentation, up to 48.5 cents per mile for the reimbursement of employees who use their own cars for company business, retroactive to September 1. This is an 8-cent increase over the 40.5-cent rate in effect for the first two-thirds of the year.

HR.BLR.com editors note that:

  • Employers may pay more or less than this amount, but if the approved rate (or a lower rate) is used to reimburse employees' automobile expenses, the IRS will consider its requirements for substantiation and adequate accounting satisfied—there is no need for extensive documentation of actual expenses.
  • The employer may deduct reimbursements at a higher rate, but only if the reimbursements reflect the actual cost of the travel and only if the employer keeps adequate records to substantiate its outlays.
  • Reimbursements for tolls, parking, etc., may be deducted in addition to the mileage allowance.

All employers should require employees who use personal cars for business to keep records of whom they went to see, when (time, date, and duration), and for what purpose, as well as the mileage and related expenses that were incurred. They also should have a policy that includes an explanation of those recordkeeping procedures, the reimbursement procedure, and a notice that reimbursements will only be made for company business.

For employers who interested in helping employees to conserve gas, Business & Legal Reports offers a free download: “Telecommuting: A Guide to Managing Employees.” Get it here: http://www.blr.com/82008500/PRS52

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Old Saybrook, Conn.-based BLR produces plain-English compliance and training resources for HR, compensation, safety, and environmental managers. For more information and a free catalog, call 800-727-5257 or visit http://www.BLR.com.

Contact:

Kevin Flood

HR.BLR.com Managing Web Editor

860 510-0100 x 2283

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