Employers, employees and other taxpayers should use care to properly take into account recent changes in Internal Revenue Code (“Code”) rates and deduction rules reporting or when projecting, reporting or claiming mileage reimbursements or deductions for 2018 and 2019.
Employers, employees and other taxpayers should use care properly to take into account recent changes in the rates and rules for deducting mileage and business, charitable and medical mileage and other travel expenses under the Internal Revenue Code (“Code”).
Historically, the Code has allowed individual taxpayers to claim deduct either actual expenses incurred or the applicable standard deduction for business, medical or charitable mileage and other travel expenses. While most employers, employees and other taxpayers understand the Internal Revenue Service (“IRS”) adjusts applicable standard mileage rates annually, many are unaware the recent tax law changes generally prohibit employees, but not certain other income earners, from claiming a mileage deduction for business mileage. Many employees or other individual taxpayers also do not realize that different deduction rates apply to businesses versus charitable and medical mileage expenses. Understanding these nuances is important to avoid making mistakes in projecting, reporting or deducting mileage expenses and reimbursements.
2019 Standard Mileage Deduction Rates
The Code generally allows a taxpayer to elect either to claim a deduction for substantiated actual mileage and other transportation expenses or or an amount computed using the applicable standard mileage rate declared by IRS for that taxable year under mileage reimbursement policy, whichever is greater from the gross total income. However, different applicable standard mileage rates apply to mileage for business, charitable, medical or moving expenses and the IRS adjusts each of these standard mileage rates annually.
Notice 2019-02 sets 2019 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes. The notice also provides the amount taxpayers must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. For 2019, the applicable standard mileage rates are as follows:
- The standard mileage rate for transportation or travel expenses is 58 cents per mile for all miles of business use (business standard mileage rate);
- The standard mileage rate is 14 cents per mile for use of an automobile in rendering gratuitous services to a charitable organization under § 170;
- The standard mileage rate is 20 cents per mile for use of an automobile: (1) for medical care described in § 213; or (2) as part of a move for which the expenses are deductible under § 217(g).
Unreimbursed Employee Travel Expense & Moving Expense Deduction Suspension
Even though the IRS has published standard mileage rates for use of an automobile for medical care or as part of a deductible move, most taxpayers incurring these expenses will not be able to claim any deduction for these expenses. While the Code historically allowed employees and other taxpayers to claim an itemized deduction for business, charitable or medical care related transportation expenses, Section 11045 of the Tax Cuts and Jobs Act, Public Law 115-97, 131. Stat. 2054 (December 22, 2017) (the “Tax Act”) suspends the deductions of unreimbursed employee travel expenses and for relocation expenses for the 2018 through 2026 tax years. Specifically, the Tax Act amended the Code to prohibit employees from claiming unreimbursed employee travel and relocation mileage deductions for the 2018 through 2026 tax years. Historically, the Code allowed employees filing itemized tax returns to include unreimbursed employee transportation expenses among the itemized expenses deductible in excess of the two percent of their adjusted gross income. In connection with its expansion of the standard individual deductions, however, the Tax Act suspends all miscellaneous itemized deductions subject to the two-percent of adjusted gross income floor under Code § 67, including unreimbursed employee travel expenses, for taxable years beginning after December 31, 2017 and before January 1, 2026. In contrast, however, the Tax Act does not suspend the deduction in determining adjusted gross income of travel expenses or other expenses incurred in the production of income by independent contractors or other non-employee taxpayers. Since unreimbursed travel expenses of employees are subject to the adjusted gross income floor under Code § 67, employees cannot claim an itemized deduction for unreimbursed employee travel expenses for 2018 or 2019. In contrast, the Tax Act did not suspend the deduction for expenses incurred in the production of income. Consequently, independent contractors and other non-employees still can deduct travel expenses as expenses incurred in connection with the production of income on line 24 of Schedule 1 of Form 1040 (2018), not as an itemized deduction on Schedule A of Form 1040 (2018), using either their actual expenses or the annually applicable business standard mileage rate.
In addition, Section 11049 of the Tax Act also generally suspends the deduction for moving expenses for the 2018 through 2026 . However, this suspension does not apply to members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station to whom § 217(g) applies. Thus, except for taxpayers to whom § 217(g) applies, the standard mileage rate for the use of an automobile as part of a move occurring during the suspension will not apply during the suspension period.
Proper calculation of applicable mileage related tax deduction depends upon taxpayers properly taking into account the suspension of the deductions for unreimbursed employee travel and relocation expenses for the 2018 through 2026 tax years and using the correct standard mileage rate. Employees impacted by these expenses should take into account these modifications when calculating and completing their tax withholding forms and projecting their tax liability. Because many employees may not be aware of these changes, employees with employees likely to be impacted by these changes may wish to alerting their employees to these changes. Employers that previously provided employee handbooks or other communications to employees containing explanations discussions of the implications of travel or relocation expenses inconsistent with the current tax rules also should take immediate steps to withdraw or correct those communications.
About the Author
Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of management focused employment, employee benefit and insurance, workforce and other management work, public policy leadership and advocacy, coaching, teachings, and publications.
Highly valued for her rare ability to find pragmatic client-centric solutions by combining her detailed legal and operational knowledge and experience with her talent for creative problem-solving, Ms. Stamer’s clients include employers and other workforce management organizations; employer, union, association, government and other insured and self-insured health and other employee benefit plan sponsors, benefit plans, fiduciaries, administrators, and other plan vendors; domestic and international public and private health care, education and other community service and care organizations; managed care organizations; insurers, third-party administrative services organizations and other payer organizations; and other private and government organizations and their management leaders.
Throughout her 30 plus year career, Ms. Stamer has continuously worked with these and other management clients to design, implement, document, administer and defend hiring, performance management, compensation, promotion, demotion, discipline, FMLA and other leave, reduction in force and other workforce, employee benefit, insurance and risk management, health and safety, and other programs, products and solutions, and practices; establish and administer compliance and risk management policies; comply with requirements, investigate and respond to government, accreditation and quality organizations, regulatory and contractual audits, private litigation and other federal and state reviews, investigations and enforcement actions; evaluate and influence legislative and regulatory reforms and other regulatory and public policy advocacy; prepare and present training and discipline; handle workforce and related change management associated with mergers, acquisitions, reductions in force, re-engineering, and other change management; and a host of other workforce related concerns. Ms. Stamer’s experience in these matters includes supporting these organizations and their leaders on both a real-time, “on demand” basis with crisis preparedness, intervention and response as well as consulting and representing clients on ongoing compliance and risk management; plan and program design; vendor and employee credentialing, selection, contracting, performance management and other dealings; strategic planning; policy, program, product and services development and innovation; mergers, acquisitions, bankruptcy and other crisis and change management; management, and other opportunities and challenges arising in the course of workforce and other operations management to improve performance while managing workforce, compensation and benefits and other legal and operational liability and performance.
Past Chair of the ABA Managed Care & Insurance Interest Group and, a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, heavily involved in health benefit, health care, health, financial and other information technology, data and related process and systems development, policy and operations throughout her career, and scribe of the ABA JCEB annual Office of Civil Rights agency meeting, Ms. Stamer also is widely recognized for her extensive work and leadership on leading edge health care and benefit policy and operational issues. She regularly helps employer and other health benefit plan sponsors and vendors, health industry, insurers, health IT, life sciences and other health and insurance industry clients design, document and enforce plans, practices, policies, systems and solutions; manage regulatory, contractual and other legal and operational compliance; vendors and suppliers; deal with Medicare, Medicaid, CHIP, Medicare/Medicaid Advantage, ERISA, state insurance law and other private payer rules and requirements; contracting; licensing; terms of participation; medical billing, reimbursement, claims administration and coordination, and other provider-payer relations; reporting and disclosure, government investigations and enforcement, privacy and data security; and other compliance and enforcement; Form 990 and other nonprofit and tax-exemption; fundraising, investors, joint venture, and other business partners; quality and other performance measurement, management, discipline and reporting; physician and other workforce recruiting, performance management, peer review and other investigations and discipline, wage and hour, payroll, gain-sharing and other pay-for performance and other compensation, training, outsourcing and other human resources and workforce matters; audits, investigations, enforcement and defense; Civil Rights; privacy and data security; training; risk and change management; regulatory affairs and public policy; process, product and service improvement, development and innovation, and other legal and operational compliance and risk management, government and regulatory affairs and operations concerns.
A former lead consultant to the Government of Bolivia on its Pension Privatization Project with extensive domestic and international public policy concerns in pensions, healthcare, workforce, immigration, tax, education and other areas, Ms. Stamer has been extensively involved in U.S. federal, state and local health care and other legislative and regulatory reform impacting these concerns throughout her career. Her public policy and regulatory affairs experience encompasses advising and representing domestic and multinational private sector health, insurance, employee benefit, employer, staffing and other outsourced service providers, and other clients in dealings with Congress, state legislatures, and federal, state and local regulators and government entities, as well as providing advice and input to U.S. and foreign government leaders on these and other policy concerns.
Author of leading works on a multitude of labor and employment, compensation and benefits, internal controls and compliance, and risk management matters and a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, Ms. Stamer also shares her thought leadership, experience and advocacy on these and other related concerns by her service in the leadership of the Solutions Law Press, Inc. Coalition for Responsible Health Policy, its PROJECT COPE: Coalition on Patient Empowerment, and a broad range of other professional and civic organizations including North Texas Healthcare Compliance Association, a founding Board Member and past President of the Alliance for Healthcare Excellence, past Board Member and Board Compliance Committee Chair for the National Kidney Foundation of North Texas; former Board President of the early childhood development intervention agency, The Richardson Development Center for Children (now Warren Center For Children); current Vice Chair of the ABA Tort & Insurance Practice Section Employee Benefits Committee, current Vice Chair of Policy for the Life Sciences Committee of the ABA International Section, Past Chair of the ABA Health Law Section Managed Care & Insurance Section, a current Defined Contribution Plan Committee Co-Chair, former Group Chair and Co-Chair of the ABA RPTE Section Employee Benefits Group, past Representative and chair of various committees of ABA Joint Committee on Employee Benefits; an ABA Health Law Coordinating Council representative, former Coordinator and a Vice-Chair of the Gulf Coast TEGE Council TE Division, past Chair of the Dallas Bar Association Employee Benefits & Executive Compensation Committee, a former member of the Board of Directors of the Southwest Benefits Association and others.
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