The IRS standard mileage rate for the following tax year is normally released in December, and the figure they settle on may have a significant influence on the amount your organization pays in cost reimbursement.
As we approach the end of 2021, the likelihood of the IRS boosting the mileage rate 2022 becomes more plausible. We're reading the tea leaves of 2022 to see what the next year has in store for us to help you prepare yourself — and your wallet — for next year.
What Factors Affect the IRS Mileage Rate?
The IRS calculates the standard mileage rate each year by analyzing how much it costs to buy and operate an automobile in the United States. The IRS mileage rate is sometimes misunderstood as being linked to petrol costs. While gas prices are clearly a factor, a company mileage study of what it truly costs to buy and run a vehicle found that fuel prices account for just 30% of the total cost. Depreciation accounts for the lion's share of automobile ownership expenditures, accounting for 45 percent. Other expenses include insurance (12%), licenses, registration, and taxes (7%), tires (3%) and maintenance (3%). (3 percent).
All of these various fees start to mount up for automobile owners. According to AAA's Your Operating Costs study, the national average cost of owning and driving a car will be $9666 in 2021, up from $9561 in 2020 and $9282 in 2019. While these figures cannot be directly compared owing to AAA altering its approach this year, they still indicate an upward trend in car expenses. With growing inflation and supply chain disruptions, 2022 is shaping up to be a costly year for owning and operating a gasoline or electric car in the United States.
Insurance Rates Will Rise Due to Rising Maintenance Costs
According to S&P Global Market Intelligence's annual US Auto Insurance Market Report, the prices of repairing and replacing automobiles are rising quickly as a result of a variety of factors such as labor shortages, supply chain disruptions, and inflation. The underwriting profit margins of insurance firms will be severely reduced as a result of this. Insurance firms are anticipated to raise their prices in response.
This is a trend that we are already experiencing. According to Quadrant Information Services, the average vehicle insurance premium for a good driver with excellent credit in 2021 is $1,592, up from $1,555 in 2020. Prepare for an increase in personal insurance rates in 2022. Personal car direct premiums will rise from 3.1 percent in 2021 to 5.4 percent in 2022, according to S&P's research.
Gas prices will also continue to rise.
If you've recently filled up at the pump, you're aware that gas prices have skyrocketed this year. In September, standard gasoline retail prices in the United States averaged $3.18 per gallon, almost a dollar more than at the same time the previous year. Despite the fact that these costs are likely to fall, the national average is predicted to stay over $3 for the rest of the year. According to the US Energy Information Administration, the average in 2022 is predicted to be approximately $2.74. (EIA).
Company mileage compared yearly gasoline costs to the IRS standard mileage rate to see how these two variables have evolved since 2014 to assist you understand what this may imply for the IRS standard mileage rate.
The last time a gallon of gasoline was about $2.74 was before the 2018 epidemic. The IRS was motivated to raise the normal mileage charge to 58 cents per business mile traveled for the next year, 2019. Does this imply that the IRS will raise the rate again in 2022? It's difficult to predict how much the rate will rise, but it's a good bet that it will rise by at least two cents to reflect the increase in car prices.
What Will Be the Repercussions?
You may think that a few pennies isn't a huge concern, but when you have to compensate your staff for an additional two cents for each business mile driven, it takes a greater bite out of your budget than you would think. Assume you have 100 workers, each of whom travels 5,000 miles per year on average. Total reimbursement expenditures equal to $280,000 at the current rate of 56 cents. You pay $290,000 if the rate is 58 cents. That's an additional $10,000!