The IRS announced this week that the mileage reimbursement rate—the number of cents you can deduct on your federal income tax return per business mile driven—will rise to 62.5 cents for the back half of the year in response to inflation, and specifically in response to rising gas prices. It’s helpful for a number of people, but in the realm of this blog, it’s helpful for rideshare and food delivery drivers, who in recent years have driven roughly a mile for every $1.00 to $1.50 of gross earnings (and this is in Austin, where gas prices aren’t hideously expensive compared to elsewhere in this fair nation). At the same time, though…62.5 cents per mile is a lot.
Per AAA’s annual study, fuel last year cost 15.81 cents per mile for pickup trucks, which burn gas the fastest among the cars studied. Multiplying that by 1.5 to reflect the U.S. Energy Information Administration’s reporting on gas prices between last year and this year so far (1.5 is slightly higher than any single month’s year-over-year comparison, so as with the pickup truck thing, we’re being conservative with this), you get to 23.715 cents spent on gas per mile. Using that same study, medium sedans evidently spend the most on maintenance and repair, and that comes out to 10.43 cents per mile. Of course, pickup trucks don’t spend as much on maintenance and repair, and medium sedans don’t spend as much on gas, but effectively, if you have a very expensive car and live in an average place in the country, it is costing you an average of 34.145 cents per mile to fuel it and maintain it, leaving 28.355 cents per mile covering insurance, licensing, registration, taxes, any financing you might have, and depreciation. How much is this? Well, for someone driving rideshare or food delivery forty hours per week, fifty weeks per year, in Austin, we’d estimate it to amount to roughly $13,500, something like ten thousand of which would therefore be covering the depreciation alone.
Rideshare and food delivery cars aren’t depreciating by ten thousand dollars per year. That would more than pay for a brand new Jeep Compass in fewer than three years.
It makes sense for the IRS to compensate mileage in this manner, making sure the rate covers even the most expensive of business-used vehicles. But at the same time, people—people like us, to be transparent—are making a killing on mileage deductions. Driving a nearly-totaled-by-cosmetic-hail-damage vehicle, our car isn’t depreciating. Insurance on our car costs less than one thousand dollars per year, and we’re using it for personal use as well, meaning we’d be paying that anyway. We have no financing expenses. Registration is less than one hundred dollars per year, and that’s a sunk cost because of the personal use. Gas does cost us roughly 23 cents per mile right now, even in Austin, so that AAA number may be a little low, and in Austin that maintenance number is higher than the national average, but even with all of that, we’re getting something like 20 cents back per mile from the IRS. 24.5 cents back per mile now, now that the IRS has raised the rate again.
This strikes me as indicative of a bad system. The American tax code has bigger issues than the mileage reimbursement rate, but if the IRS is paying food delivery drivers a dollar for every four or five miles they drive, that’s a big subsidy. Not necessarily to the drivers—ultimately, if a driver is really doing this full-time, you would hope they would incorporate the mileage reimbursement rate into their decision-making on when and if to drive—but to companies like Uber and Lyft, who get to pay their drivers three or four dollars fewer per hour, effectively, because the federal government is covering that for them. Is there a great solution? I don’t know. On one side, you could force drivers to itemize their expenses, which is an option right now but would be an onerous requirement, were it a requirement. On another side, you could remove the mileage reimbursement, forcing the costs ultimately onto the consumer for everything from a landscaper’s pickup truck to a delivery driver’s Toyota Camry. In the middle, you could at least lower it, passing some of the expense onto the consumer while more aggressively incentivizing the use of more efficient vehicles, something with marginal positive environmental (less gas used) and inflationary (less demand for gas, cheaper gas, lower inflation) consequences. And as I write these parentheticals, I realize another thing: The mileage reimbursement doesn’t just subsidize Uber and Lyft and DoorDash. It’s subsidizing gas and oil. Of course it’s subsidizing gas and oil. An unelected bureaucracy is subsidizing tech, gas, and oil while pretending it’s about helping the little guy. The little guy whose grandkids will eventually be saddled with paying off their granddad’s government’s debt.
