car mileage

IRS Sets New Deductions on Vehicle Mileage Rates Following Tax Law

Jan 2nd 2018
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The IRS is ringing in 2018 with new mileage rates for vehicles used for business, charity, medical needs or moving, and the agency expects to issue this month withholding guidance concerning the tax reform bill signed into law Dec. 22.

Mileage Rates

According to Notice 2018-3, the standard rates for use of a car, van, pickup or panel truck in calculating deductions for using the vehicles are up a penny from last year to 54.5 cents per mile for business travel. Drivers who use vehicles for medical or moving needs can claim 18 cents per mile, also a 1 cent increase from 2017.

Deductions for vehicles used for charitable organizations will be 14 cents per mile. The rate is set by law and remains the same.

The IRS notes that the standard mileage rate for business is based on an annual study of the fixed and variable costs of operating a vehicle. The rate for medical and moving purposes, however, is based on variable costs.

Taxpayers can calculate the actual costs of using their vehicle rather than using the standard mileage rates, the IRS states.

Taxpayers can’t use the business standard mileage rate for a vehicle after using depreciation methods under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for the vehicle.

The business standard mileage rate also can’t be used for more than four vehicles that are used simultaneously.

Requirements are explained further in Revenue Procedure 2010-51.

Guidance for Withholding

As of Dec. 26, the IRS said it was developing withholding guidance that pertains to the new tax reform law. The agency expects to issue the initial guidance this month, and employers and payroll service providers will be “encouraged” to put the changes in place in February.

According to the IRS, the information will be formulated to work with existing Forms W-4 that employees already have filed. Taxpayers won’t need to take further action at this time.

Taxpayers will begin seeing changes in their paychecks in February once the new 2018 withholding guidance is in place.

Meanwhile, employers and payroll service providers should continue to use the 2017 withholding tables and systems, the IRS states.

Follow our coverage of the new tax law under our content series titled Tax Reform Watch.

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