In response to the sharp jump in gas prices, the Internal Revenue Service said yesterday that it was raising the standard mileage reimbursement rate by 8 cents to 48.5 cents a mile, the single largest increase ever.
The new rate will be retroactive, applying to business travel from Sept. 1 through the end of this year.
Workers who use their vehicles for business can deduct their actual expenses or the standard mileage rate on tax returns. The federal government and many private employers use the IRS rate when reimbursing workers who use their cars on the job.
Traditionally, the IRS sets the rate each fall for the following year. But IRS Commissioner Mark W. Everson said this is the first time he could recall that the agency had raised the mileage rate in midyear.
"The way we see this, it's about basic fairness to the taxpayer," Everson said in a telephone conference yesterday. "We responded to the recent price increase so they get the full benefit that they deserve."
The IRS has made midyear adjustments in the past - it lowered the rate in April 1999 by 1.5 cents to 31 cents a mile.
The bigger deduction is particularly good news for workers who spend more time in vehicles than in cubicles.
Charlotte Savoy, a Realtor with the Pat Hiban Real Estate Group in Ellicott City, said she drives about 25,000 miles a year for business, so the chance to deduct an extra 8 cents a mile on her tax return will make a difference.
But it's hardly enough to keep up with the extra cost. Both of the vehicles she uses are large - including a Chevy Suburban SUV that cost $102 to fill up last weekend.
"That's a pretty large amount of money to be spending on gas," she said. "Hopefully, it won't stay like that forever."
As gas prices have shot up, more have questioned whether drivers are better off deducting their actual expenses rather than using the standard mileage rate, said Mark Luscombe, a principal with CCH Inc., an Illinois-based tax information provider.
"This will be great," he said. "This will help keep people in the standard camp."
Besides business-related travel, the IRS also raised the mileage rate for deductible medical or moving expenses from 15 cents to 22 cents a mile. That new rate also applies for the last four months of this year.
The mileage rate for those who volunteer at charities is set by Congress and remains at 14 cents per mile.
