Updated IRS Mileage Rate Guidance Reflects the TCJA’s Elimination of Miscellaneous Itemized Deductions

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On May 25, 2018, The Internal Revenue Service issued Notice 2018-42, which has updated the earlier released Notice 2018-3, to reflect changes to the tax law made by the Tax Cuts and Jobs Act (TCJA), which was enacted in December 2017.

Changes impacting the earlier Notice include:

  • the suspension of the deduction for un-reimbursed employee expenses;
  • the suspension of the deduction for move-related expenses; and
  • the increase of depreciation limits for passenger vehicles.

Un-Reimbursed Employee Expenses

The TCJA temporarily suspends all miscellaneous itemized deductions that are subject to the two-percent of adjusted gross income floor until January 1, 2026. This change affects un-reimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.

Thus, the business standard mileage rate of 54.5 cents per mile listed in Notice 2018-3, cannot be used to claim an itemized deduction for un-reimbursed employee travel expenses in taxable years beginning after December 31, 2017, and before January 1, 2026.

Certain taxpayers, however, may continue to deduct itemized un-reimbursed employee travel expenses. These include:

  • members of a reserve component of the U.S. Armed Forces,
  • state or local government officials paid on a fee basis, and
  • certain performing artists.

Thus, Section 3 of Notice 2018-3 will continue to apply to those above-listed taxpayers claiming deductions for un-reimbursed employee travel expenses.

Move-Related Expenses

Prior to the TCJA, Section 3 of Notice 2018-3 provided a standard mileage rate of 18 cents per mile for moving expenses pursuant to Internal Revenue Code §217. The new tax law also suspends this deduction for expenses incurred through the use of an automobile as part of a move until January 1, 2026.

Note, that this suspension does not apply to members of U.S. Armed Forces on active duty who move pursuant to a military order(s).

Increased Depreciation Limits for Passenger Vehicles

The TCJA increases the depreciation limitations for passenger automobiles placed in service after December 31, 2017. Under the new law, for purposes of computing the allowance under a fixed and variable rate plan, the standard automobile cost may not exceed $50,000 (increased from $27,900 for standard automobiles and $31,300 for trucks and vans as listed in Section 5 of Notice 2018-3).

Standard Mileage Rates for 2018

Though they cannot be used by most taxpayers to claim the suspended deductions as noted above, the standard mileage rates for the use of a car, van, pickup or panel truck for 2018 remain as detailed in Notice 2018-3:

  • 54.5 cents for every mile of business travel driven
  • 18 cents per mile driven for medical purposes
  • 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical purposes is based on the variable costs. The rate for charitable use is set by statute. Taxpayers always have the option of calculating the actual costs of using their vehicles rather than using the standard mileage rates.

In Summary

The loss of a deduction for un-reimbursed employee business expenses is one of the harsh realities resulting from the temporary suspension of the miscellaneous itemized deductions. However, the use of an accountable plan may offer a useful alternative for ensuring that the value of these deductions are not lost. If you have questions or would like assistance in this area, please contact Bob Grossman or Don Johnston at 412-338-9300.