In 2008, the Internal Revenue Service (IRS) increased the standard mileage deduction for business use of a motor vehicle to 50.5 cents per mile. Employees or the self-employed may use this optional amount in computing the deductible cost of operating an automobile, van, pickup or panel truck for business purposes. Employers that use the IRS rate or lower may deduct that amount as a business expense. However, employees who are reimbursed at a higher rate may be required to pay taxes on the difference between their reimbursement rate and the IRS standard mileage deduction because the IRS considers that amount to be wages.

What Should You Do?

• Review your policies to ensure you are not reimbursing employees at a rate higher than 50.5 cents per mile for 2008.
• If you intend to change the reimbursement rate, notify your employees.
• Consult with your accountant to ensure you are in compliance with applicable tax laws.