Here is some good news for federal employees who drive their own vehicles on government business—along with a dose of bad news as well.
On August 31st, FedSmith.com ran an article (See “Gas Guzzlers Beware”) pointing out that federal employees reimbursement for mileage spent on driving their own cars for government business is 40.5 cents based on a rate set on February 4, 2005. The Internal Revenue Service has raised its rate for mileage reimbursement clearing the way for the General Services Administration to follow suit if it chooses to do so.
The rate approved by the General Services Administration isn’t that old, it has just been surpassed by the rapidly changing economics of the gas and oil industry.
A few days after the Gas Guzzlers article, the National Treasury Employees Union (NTEU) sent a letter to the Internal Revenue Service pointing out the problem and asked the Internal Revenue Service to raise the reimbursement rate. NTEU President Colleen Kelley said in a press release “In an effort to help ease the impact of sharply rising gas prices on those who use their vehicles in their jobs—including federal workers—the head of the National Treasury Employees Union (NTEU) today called on the Internal Revenue Service (IRS) to raise the maximum mileage reimbursement rate allowed as a business expense tax deduction.”
On September 9th, the Internal Revenue Service did this. It raised the rate for reimbursement for mileage to 48.5 cents on a temporary basis until December 31, 2005.
The IRS raised the rate in consideration of the recent hike in gas prices, even though the agency normally reviews the rate on a yearly basis. “This is about fairness for taxpayers,” according to IRS Commissioner Mark W. Everson. “People are entitled to deduct the real cost of operating a vehicle. We’ve responded to the recent gas price increases by making this special adjustment so taxpayers get the tax benefit they deserve.”
The agency may change the rate early next year, possibly even lowering the rate, as the 48.5 cents takes into account a variety of factors including the cost of gasoline. It is possible the recent spike in gas prices is temporary but the cost of a new car and insurance are also factors.
So what does this mean for federal employees? It is now possible for the GSA to raise the reimbursement rate for federal employees as well. While this is likely, the agency does not have to do so.
According to the Department of Energy, the cost of gas has surged, even since our article was published on August 31st. The average price of a gallon gas is now about $3.07—a significant increase of about 45 cents in just one week and about $1.21 more in the past year. At the time of our original article, it was "only" about 74 cents more than a year ago.
So, the good news is that the mileage reimbursement may increase for those federal employees who drive to conduct government business. It is also possible that the cost of gasoline will now start to decline with the production facilities on the Gulf Coast starting to come back on line. Of course, the bad news is that you are still going to be paying more for gasoline and insurance (if you drive your own car) than you were a year ago and the increased mileage rate may not be enough to cover that increase–even if the cost of gas does decline.