By Mary Ellen Schill
December 23, 2020
The Internal Revenue Service has announced the optional standard mileage rates for computing the deductible cost of operating an automobile for business, medical, and moving expenses for 2021, and the decrease in rates reflect the decrease in the fixed and variable costs of operating a vehicle. Effective January 1, 2021, the optional standard mileage rates will decrease to 56 cents per mile for business transportation, and decrease to 16 cents per mile for travel relating to medical transportation expenses.
This change in mileage rates is relevant to employers that reimburse employees for business transportation based on mileage. While there is no legal requirement that employees be reimbursed at the IRS standard rate, many employers have a policy of doing so. Even though the 2017 Tax Cuts and Jobs Act eliminated the ability of taxpayers to claim a miscellaneous itemized deduction for unreimbursed employee travel expenses, the income tax exclusion for employees if such expenses are reimbursed was retained. As a reminder, any payments to an employee based on business travel at a rate in excess of the IRS standard rate generally is taxable income to the employee.
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