Business, Medical, and Moving Standard Mileage Rates Decrease for 2021

(Parker Tax Publishing January 2021)

The IRS issued the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes. The IRS also issued the amount taxpayers must use in calculating reductions to a vehicle's basis for depreciation taken under the business standard mileage rate, as well as the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate plan. Notice 2021-2.

Beginning on January 1, 2021, Notice 2021-2 provides that the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

(1) 56 cents per mile (down from 57.5 cents per mile in 2020) driven for business use;

(2) 16 cents per mile (down from 17 cents per mile in 2020) driven for medical or moving purposes; and

(3) 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased one and one-half of a cent per mile for business travel driven and decreased one cent per mile for medical and certain moving expense from the rates in effect for 2020. The charitable mileage rate is set by statute and remains unchanged.

Observation: It is important to note that under the Tax Cuts and Jobs Act, individuals cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Individuals also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty who are moving under orders to a permanent change of station.

An independent contractor conducts an annual study for the IRS of the fixed and variable costs of operating an automobile to determine the standard mileage rates for business, medical, and moving use. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Code Sec. 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than five vehicles used simultaneously. These and other limitations are described in Section 4.05 of Rev. Proc. 2019-46.

Notice 2021-2 also contains the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, as well as the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. In addition, for employer-provided vehicles, Notice 2021-2 provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2021 for which employers may use the fleet-average valuation rule in Reg. Sec. 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in Reg. Sec. 1.61-21(e).

For a discussion of the rules relating to the use of the standard mileage rate, see Parker Tax ¶91,110. For a discussion of transportation costs relating to medical care, see Parker Tax ¶82,535. For a discussion of mileage rates relating to charitable work, see Parker Tax ¶84,125.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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