Rising gas costs put business travelers in a bind
Keith Caswell of Bedford provides technical assistance for a communications company in Waltham, Mass. He makes the 120-mile round-trip commute up to three times a week. He does this in his 1995 Grand Marquis, which gets about 15 miles to the gallon. Caswell can spend close to $80 per week just getting to and from work.
The 20 case managers of Life Coping Inc., an elderly case management company based in Nashua, spend their days visiting clients throughout the Granite State. While on-the-job travel amounts vary from case manager to case manager and week to week, one thing is consistent – without a dependable car and a tank of gas, none of them would be able to fulfill his or her obligations.
While Caswell’s role in the communications industry and the roles of the Life Coping providers are on nearly opposite ends of the employment spectrum, they do have something in common: Like other Granite State residents dependent on automobile travel for their livelihood, they are feeling the sting of rising gas prices, despite the mileage reimbursement policy of their respective companies that fall in line with the 2005 IRS optional standard mileage rate of 40.5 cents per mile.
Among those employees who receive the IRS-recommended reimbursement are employees of the state of New Hampshire.
“This is what our bargaining agreement calls for,” said New Hampshire Administrative Services Commissioner Don Hill. “We won’t review it unless the IRS does.”
Three cents higher than the 2004 rate, the 40.5-cent figure represents the highest one-year increase ever. And with gas prices at previously unimagined highs there is some question as to whether or not 2006 will bring another precedent-setting adjustment to the rate.
According to Lee Czarapata, client relations director for Runzheimer International, a Rochester, Wis., research company charged with setting the annual IRS rate, rising gas prices will indeed affect the new rate.
“The rate is reviewed each year and reported by the IRS in the last quarter of the year,” Czarapata said, adding that the rate will be based on an average of monthly data. He said the 2006 rate will be based on average costs over a defined period in 2005 that includes the month September – when gas prices across the nation topped $3 a gallon.
But a number of variables play a role in the final rate set by the IRS, Czarapata said.
“Fixed costs and operating cost data is assembled for a four-year, 60,000-mile vehicle life cycle,” Czarapata said. “All data is then divided by the 15,000-mile target to reach the 40.5 cents per mile.”
As of Sept. 7, prices for a gallon of regular gasoline in the Granite State had increased by more than $1.25 since September 2004 when, in some cases, they neared $3.30 a gallon.
The question is: Can and does the yearly adjustment compensate for the rising prices?
And what about those Granite State residents whose mileage compensation falls short of the IRS rate?
For example, sales associates and reporters for The Telegraph, a daily newspaper in Hudson, are still receiving 29 cents per mile, according to human resource director, Ellin Carroll.
“The rate has not changed in the three years that I’ve been here,” Carroll said. The rate is 2 cents less than the 1999 IRS rate.
(New Hampshire Business Review is a subsidiary of the same corporation that owns The Telegraph.)
If it’s just gas, even the lowest reimbursement rates seem to cover the cost for most on-the-road workers. But the margin between total operating costs and mileage reimbursement continues to shrink as gas prices rise.
“The rate is still covering gas costs, but people are becoming concerned,” Czarapata said.
For the average driver whose car gets about 20 miles to the gallon, the 40.5 cent rate will continue to cover gas costs unless fuel were to rise above $8 a gallon.
Viewing the optional standard mileage rate in this light may take some of the psychological sting out of escalating gas prices, but in reality the IRS number is meant as the standard rate of tax deduction to offset the operational costs associated with business driving, including insurance and wear-and-tear on the vehicle.
“The rate is used to compute the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes,” said Peggy Riley, media relations specialist for the IRS.
Rates for medical or moving expenses are 15 cents per mile, while the charity rate is 14 cents.
“The rate is meant as a safe harbor number for tax deduction purposes,” Czarapata said. “If a business driver does not elect to use receipts to deduct vehicle expenses the driver can use the IRS rate times the mileage logged or recorded.”
Last year at this time, with gas prices nearing $2 a gallon, the IRS mileage rate was 37 cents per mile. For a car averaging 20 miles to the gallon, gas cost 10 cents a mile leaving 27 cents per mile to go toward other operational expenses.
For business motorists who put 10,000 miles a year on their car, that’s $2,700.
Today, as gas prices hover around $3.30 a gallon, gas costs about 16.5 cents per mile. A 40.5-cent reimbursement leaves 24 cents per mile to cover other expenses. For someone who travels 10,000 miles annually, this translates to $2,400 or a $300 loss.
For those who receive less than the IRS rate – say 30 cents per mile – the difference is a bit more significant. That leaves only 13.5 cents per mile for operational expenses, or $1,350 per year, an added loss of $1,050.
The good news for this group is that they can still take advantage of the increased standard mileage rate. According to Riley the difference between what a company reimburses for mileage and the standard IRS rate can be deducted at tax time unless the taxpayer has used any depreciation method of tax deduction. Any specific questions are best addressed by an accountant.