Some Good News from the I.R.S.

With oil prices soaring ever higher, it seems like there is no good news when it comes to filling up at the pump. However, some small relief to the current high gas prices has recently come from a most unlikely source – the Internal Revenue Service. In late November of last year, the IRS raised the standard mileage reimbursement rate for 2008 to 50.5 cents per mile.

According to Labor Code section 2802: “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence” of the performance of his or her job duties. Included in these “necessary expenditures” is the cost incurred by an employee in using his or her vehicle for business purposes.

The IRS sets out a standard mileage rate to calculate the costs of operating a vehicle for business purposes. Beginning January 1, 2008, the mileage rate for the use of a car (including vans, pickups or panel trucks) was raised to 50.5 cents per mile for business miles driven. This constitutes a two-cent raise from 2007.

Employers must exercise caution in reimbursing employees for mileage. According to California’s Department of Labor Standards Enforcement, employers must reimburse employees for mileage at the IRS rate in order to comply with Labor Code section 2802. However, according to a recent California Supreme Court case, an employer may negotiate with the employee a mileage rate different from the IRS rate, so long as it fully reimburses the employee. But whenever an employer chooses to reimburse an employee below the IRS’s standard, extreme care should be taken to ensure that the negotiation was fair.

So while employees are not going to get rich from this small IRS increase, employees will no doubt be pleased to hear of some good news from the IRS. As for employers, the 2008 increase, while small, could create some headaches down the road if not followed today.