Effective Jan. 1, 2009, IRS is setting the standard business mileage rate at 55 cents per mile.

That’s down 3.5 cents from the rate set for July 1-Dec. 31, 2008, so don’t be surprised if some employees grumble. If you do field complaints about the lower reimbursement rate, it’s worth pointing out that the 55-cent rate is still a net increase from the 50.5 cent rate that was in effect in Jan. 1-June 30.

Two other rates worth noting

Also effective Jan. 1 are the mileage rates for:

• medical or moving purposes (24 cents per mile), and
• charitable service (14 cents).

You’d use the moving rate if you reimburse an employee for a job-related move. That rate is slightly lower, down from 27 cents in the second half of ‘08. The charitable service rate — which is set by Congress, not IRS — is unchanged. You can get the full details from IRS.

The charitable rate is mostly used by individuals, and probably not something you generally handle. But as non-profits lobby Congress to change the charitable rate, it shines more light on the business mileage rate.

Several bills are still pending that would hike the business rate even further — some are proposing as much as 70 cents per mile.

And with gas prices still near record highs, and a lot of congressional seats up for grabs this year, it’s likely politicians will want to throw a bone to the voters to keep them happy.

So you could see yet another mileage rate increase before the year is out.

The definitive answer: Kind of.

A new survey by the Society of Human Resource Management shows that 42% of companies say they’re reimbursing at the new cap — and another 3% are planning to get there.

That’s the most common strategy by far, but it also means that more than half of your peers aren’t at the full cap — and don’t plan to be.

Chances are however, that those companies that don’t raise to the full mileage rate, will be raising their reimbursement rates to at least keep within shouting distance of IRS’ rate.

What was your company’s response to the mid-year mileage rate hike? And how did employees respond? Let us know in the comments.  

It’s a mixed bag for Accounting: On one hand, it should reduce the amount of griping you hear from employees who use their cars for business travel. On the other hand, it’ll require extra work on your part to get everyone up to speed.

If your company is matching the increase, be prepared to move quickly to get the word out to everyone who needs to know it. Because there’s so little time to prepare for the change, there’s likely to be some confusion.

Send a short, clearly worded memo to business travelers, managers who approve expense reports and any other affected co-workers. Better yet: Send one via email, and one on paper to increase the chances that at least one of them gets noticed.

As a further reminder, update any electronic expense report forms you have. If that’s not an option, place an “update” notice in an area that most travelers will see. That might mean the break room, A/P’s in-bin or any other highly trafficked spot.

Congress to change the rate again?
While IRS’ change is good through the end of the year there’s another potential change on the horizon. Currently, there are bills in the House and Senate that would raise the mileage rate to 70 cents – and make the change retroactive to Jan. 1, 2008.

It may take some time for the bills to make their way through Congress, but in an election year – with voters feeling the economic pinch of rising gas prices – it’s a safe bet that some version of the law will be passed.

Other rates to note
The rates for moving and medical mileage are also increasing to 27 cents per mile. (Use the moving rate if you reimburse an employee for a job-related move.) The charitable rate, set by Congress, is still 14 cents.

The president of the National Treasury Employees Union (NTEU) has written to IRS asking it to hike the rate to ease the economic pain for workers who rely on their cars to take care of business.

Last time NTEU made a similar request, 2005, IRS complied with a sizeable mid-year increase.

NTEU noted that pending legislation would raise the mileage rate to as much as 70 cents — it could also take a while to become law. IRS has the authority to make a change much sooner.

Could we see a two-step change: IRS institutes one mid-year hike in the rate, and then Congress increases it further? It’s anyone’s guess, but one thing is certain: With gas at $4/gallon — and only going up — something’s gotta give soon.

There’s increasing pressure on IRS to raise the standard business mileage rate again mid-year
A recent study by AAA says the average cost of driving a vehicle is up to 54.1 cents per mile. The current reimbursement rate is only 50.5.

With gas prices continuing to rise — and showing no sign of slowing down — the Service may have to do another mid-year hike to keep pace with the inflation.

If it doesn’t, expect a major hike at the end of this year.

Edited to correct ‘08 rate.