The Internal Revenue Service has announced the optional standard mileage rates for computing the deductible cost of operating an automobile for business, medical, and moving expenses for 2017, and the reduced rates reflect the continued decrease in gasoline prices. Effective January 1, 2017, the optional standard mileage rates will decrease to 53.5 cents per mile for business transportation, and decrease to 17 cents per mile for travel relating to medical and moving transportation expenses.

These mileage rates apply only to those expenses incurred or paid by a taxpayer on or after January 1, 2017 (and if reimbursed by an employer, reimbursed by the employer on and after that date). Expenses incurred prior to January 1, 2017 (whether reimbursed by the employer before or after that date) are still subject to the old 2016 rates (54 cents for business transportation, 19 cents for medical and moving transportation). The standard mileage rate for the deduction for charitable contributions remains unchanged from 2016 at 14 cents per mile.

This change in mileage rates is relevant to employers that reimburse employees for business transportation based on mileage. While there is no legal requirement that employees be reimbursed at the IRS standard rate, many employers have a policy of doing so. As a reminder, any payments to an employee based on business travel at a rate in excess of the IRS standard rate generally is taxable income to the employee.