IRS Raises Standard Mileage Reimbursement Rate for 2022

For cities that use the IRS rate to reimburse employees and elected officials for mileage, be aware that on January 1, 2022, the IRS will raise the standard mileage reimbursement rate from 54 cents to 58.5 cents per mile. Employers can find the official rates in IRS notice 2022-03.

According to Ken Robinson, market research manager at Boston-based Motus, a mobile workforce management software firm, “there were quite a few compounding trends from 2021 that affected driving costs” including:

• Fuel prices rocketed in 2021, representing a 32 percent year-over-year increase in the national average between October 2020 and October 2021 and the highest levels since 2014.
• Insurance resumed its steady pace of annual increases that was disrupted in 2020, representing a 24.2 percent increase in auto insurance premiums since 2011, with accident frequency in 2021 heading toward 2019 levels.
• Disruptions in the supply chain and constraints such as the chip shortage led to depreciation rates remaining low—70 percent lower than pre-pandemic levels—with residual values for vehicles likely remaining high.

For employers that use the Commonwealth of Kentucky mileage rate, the rate for January 1, 2022, through March 31, 2022, will remain at 44 cents per mile. The Commonwealth of Kentucky Finance and Administration Cabinet provides new rates January 1, April 1, July 1, and October 1 of each year. This information is published on the Finance and Administration Cabinet State Employee Travel website. The reimbursement rate is determined using the American Automobile Association (AAA) Daily Fuel Gauge Report for Kentucky for regular unleaded gasoline. The gasoline cost used for the calculation is located on the AAA website.

Cities can use either the Commonwealth of Kentucky or the IRS rate in their reimbursement policies, although most auditors prefer the use of the Commonwealth of Kentucky rate. Pursuant to KRS 64.710, one thing cities cannot do is provide a lump sum expense account for personal use of a vehicle or any other personal or official expense unless the allowance is provided for by statute or approved by the General Assembly. This does not only apply to the use of vehicles, but also to meals, uniforms, and other related expenses.

Cities should make sure their travel and expense reimbursement policies not only comply with state law, but that they also comply with IRS requirements. Fringe benefits can be used to attract and retain employees; however, it is important to note that many of these benefits are subject to taxation. Always err on the side of caution and remember that a fringe benefit is taxable unless the law specifically excludes it. The IRS publishes a Local Government Fringe Benefit Guide each year to assist local governments in navigating this difficult area. The comprehensive guide covers the requirements for expenses related to travel, meals, lodging, uniforms, equipment, take-home vehicles, and volunteers as well as many other areas. Cities should also work with their CPA or local auditor to answer any specific questions on processing fringe benefits for their employees as the failure to comply with the law may subject the employer to penalties.

For sample travel policies or more information on this or any personnel-related matters, contact KLC Personnel Services Manager Andrea Shindlebower Main.