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Mileage Rate Hike Won’t Help Professional Drivers, Advocates Say

July 6, 2022, 8:45 AM

Advocates and labor organizers say the IRS’s rare move to increase the business mileage deduction rate mid-year doesn’t do much to ease the inflationary pressure on ride-hailing and taxicab drivers dealing with high gas prices.

Karen O’Byrne, president and interim CEO of Motus, the workforce management company that provides the data on which the IRS bases its rate, said it’s only the third mid-year rate increase since 2008. The agency upped the rate to 62.5 cents per mile from 58.5 cents, effective July 1 through the end of the year. Mileage incurred in the first half of the year can be deducted only at the lower rate.

The New York Taxi Workers Alliance conducted a survey of approximately 500 drivers that found “a significant number of them” had to decide between gas or groceries, said Bhairavi Desai, Executive Director of the NYTWA.

The rate increase won’t benefit the city’s cab drivers, said Desai, as most opt instead to list their expenses individually rather than calculating mileage with the flat rate.

Drivers for ride-hailing services also might not see much of an effect. While contract workers in other professions can raise their rates, app-based drivers can’t, said Nicole Moore, president of Rideshare Drivers United, a California-based advocacy group.

She said most Lyft and Uber drivers aren’t required to pay much taxes to begin with, due to low wages.

“It doesn’t help with our tax burden, because our tax burden is already zero,” Moore said, adding that “the expenses of being a ride-share driver are so vast, and companies don’t cover our costs.”

Angela Alexander, a tax principal at Cleveland accounting firm Barnes Wendling CPAs, acknowledged that using the deduction rate wouldn’t make much of a difference for ride-hail service drivers. However, since these drivers are paying out of pocket for their own expenses, they should still try to deduct every cent they can, she said.

“Four cents is four cents, but you know, it’s still–with the price of gas right now, every little bit helps.”

Mitigation Efforts

Ride-hailing companies are instituting customer fees to mitigate the effects of high gas prices.

Lyft has added a 55-cent fuel surcharge for all US rides except in New York City and Nevada. Uber has implemented a similar fuel surcharge ranging from 45 to 55 cents for all US rides, with the exception of New York City.

The reason why the companies omitted New York City, said Desai, is because the city’s Taxi and Limousine Commission raised pay rates earlier this year. The problem, she said, is the city’s raise was based on outdated data that did not take inflation into account and is based on average household expenses, not spending data specific to driver contract workers.

The NYTWA, which also advocates for ride-hailing drivers, is trying to get a 75-cent fuel surcharge for both taxi and app-based drivers in the city to get relief. New York state has a gas tax holiday in effect through the end of 2022.

Though most drivers won’t benefit from the IRS rate increase, Desai said it is “significant and something that we would hope signals to local regulators that they should take action for professional drivers,” she said.

Lyft said its drivers made more than 25% above than their minimum pay rate in the previous year, and its drivers are eligible for a wide range of tax deductions which can cover cellphone plans, lease payments, or vehicle depreciation.

Uber spokesperson Freddi Goldstein said the company’s 5.3% driver rate increase, which took effect in March, brings “the minimum wage up to $31.74 in New York City and helps with increasing fuel prices.”

Keeping Up With Inflation

The IRS rate hardly adjusts to the “volatility” of fuel prices, as had been the case even before rapid inflation, O’Byrne said. She said Motus has an alternate methodology called the Fixed and Variable Rate, which accounts for several fluctuating variables in vehicle costs, such as gas prices and routine upkeep related to vehicle use.

More than 300,000 clients, including Briggs & Stratton, Yuengling, and Papa John’s, consult Motus for FAVR usage and other services, according to the workforce management company. However, there’s overall little usage of FAVR in the market “because there is little market awareness of FAVR’s existence,” O’Byrne said.

The IRS flat rate was at 55.5 cents per mile in July 2011, the time of the most recent mid-year increase, and has gone as low as 53.5 cents since. The 55.5-cent figure effective in 2011 would be 71 cents if adjusted for inflation.

“There’s not a clear end in sight with respect to these inflationary pressures,” O’Byrne said.

To contact the reporter on this story: Richard Tzul at rtzul@bloombergindustry.com

To contact the editors responsible for this story: Patrick Ambrosio at PAmbrosio@bloombergindustry.com; Alex Clearfield at aclearfield@bloombergindustry.com