Wednesday, July 9, 2008

IRS, firms increase rates for mileage

Skyrocketing fuel prices spark hike to 58.5 cents

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With gasoline prices soaring, Coffey Consulting LLC is following the federal government’s lead and increasing its mileage reimbursement for employees who drive their personal vehicles for business.

‘‘We follow the IRS guidelines,” said Lester Coffey, president of the Bethesda company. ‘‘And it’s the right thing to do.

‘‘I view it as not that much of an increment,” Coffey said. ‘‘It’s not a big incremental cost for what I get from my employees.”

The Internal Revenue Service increased its rate for deductible mileage reimbursement by 8 cents to 58.5 cents per mile as of July 1, through Dec. 31.

This is only the second time in recent years — the first after Hurricane Katrina struck the Gulf Coast in 2005 and sent fuel prices skyrocketing — that the IRS has adjusted the rate in midyear. Typically, it’s adjusted annually.

‘‘Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile,” IRS Commissioner Doug Shulman said in a statement announcing the decision.

The federal government uses the IRS rate as a benchmark for its employees. Businesses need not follow the guidelines, but many do, said John B. Townsend II, manager of public and government affairs for AAA Mid-Atlantic.

Business Travel News reported that a 2006 survey showed 82.5 percent of companies — including Coffey’s — used the IRS rate for reimbursing employees. Workers who are reimbursed at a lower rate can deduct the difference on their income taxes.

The workers at the Baltimore gypsum manufacturing plant of USG Corp. also will see their mileage reimbursement increased to the new level, said plant manager Dave Butler.

‘‘We got a memo from our corporate office in Chicago,” he said.

About 200 employees work at the plant, but few of them drive their personal vehicles for work-related reasons, Butler said.

With gasoline prices now averaging above $4.07 per gallon across the region, people who use their vehicles for business are ‘‘hurting,” Townsend said.

‘‘Anyone who uses a car for a daily conduct of business — the ‘road warriors’ — it’s a tremendous strain,” Townsend said.

Gasoline prices are about a dollar per gallon higher on average than when the IRS set the rate at the beginning of the year, he said.

‘‘Even at 58 cents a mile, that’s still below what it costs to own and operate a car these days,” Townsend said.

Crude oil prices hit record highs topping $145 per barrel last week, which will send gasoline prices even higher, Townsend said. ‘‘It wouldn’t surprise me if the Internal Revenue Service has to increase the reimbursement again later this year,” he said.

This report originally appeared in The Business Gazette.