Effective July 1, 2011, the IRS has made two significant tax law changes. The first is an increase in the mileage rate. The second is a reduction in the Federal Unemployment rate (FUTA). The IRS has announced an increase in the standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.
Mileage Rate Changes
The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011.
“This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices,” said IRS Commissioner Doug Shulman. “We are taking this step so the reimbursement rate will be fair to taxpayers.”
The new rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations will remain at 14 cents a mile.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
As always, you need to maintain contemporaneous records to substantiate your deductions.
Reduction of the Federal Unemployment Rate
Congress has announced that the 0.2% FUTA surcharge will not be extended. The IRS will begin implementing this reduction of payroll taxes July 1, 2011.
Employers have been required to pay a flat rate of 6.2% on the first $7,000 of each employee’s annual wages for FUTA. The 6.2% FUTA rate included a temporary 0.2% surcharge that was first added in the 1970’s. Effective immediately, the rate will be reduced to 6.0%. Employers will still receive the 5.4% credit for paying state unemployment on time, reducing the FUTA rate to .6% on wages paid up to the annual FUTA limit of $7,000.00.
The IRS is currently revising Form 940 to accommodate the two different FUTA rates for calendar year 2011.
Let us know if you have any questions.
Source:
IRS Increases Mileage Rate | Tax Tip of the Week | No. 99