What happened?

As a reminder to all employers, the IRS has announced the 2026 optional standard mileage rates and related valuation thresholds, effective January 1, 2026. These rates apply to gas, diesel, hybrid, and fully electric vehicles.

Rates for 2026:

• Business: 72.5¢/mile (+2.5¢ vs. 2025)
• Medical: 20.5¢/mile (–0.5¢)
• Moving (eligible active‑duty military & certain intelligence community): 20.5¢/mile (–0.5¢)
• Charitable: 14¢/mile (no change; statutory)

What is the standard mileage rate? A cents‑per‑mile benchmark the IRS publishes each year to simplify calculating deductible or reimbursable vehicle expenses under applicable IRS rules for business, medical, moving (limited eligibility), or charitable use.

Overview

The IRS updates standard mileage rates annually to reflect changes in vehicle operating costs.

• The business mileage rate incorporates both fixed and variable costs of operating a vehicle.
• The medical and moving rates reflect variable costs only.
• The charitable rate is set by statute and does not change based on cost inflation.
• Use of the standard mileage rate is optional; but taxpayers and employers must follow specific IRS election rules once a method is chosen. In particular, employers cannot freely switch between standard mileage and actual expense methods for a vehicle after it is placed in service, and special restrictions apply to leased vehicles.
• Employee deductions: Under current federal law, unreimbursed employee business mileage is generally not deductible. Only limited exceptions remain (e.g., certain educators, reservists, specified state or local officials, and certain performing artists). Deductible moving expenses are limited to active-duty military members and certain intelligence community employees who relocate under qualifying orders.

Why this matters: Accurate mileage reimbursement helps maintain tax compliance, aligns with accountable plan rules, reduces payroll tax exposure, and ensures policies remain relevant for employees who use personal vehicles for work.

Action Steps for Compliance

• Update rate to 72.5¢/mile for miles driven on/after Jan 1, 2026; keep 2025 miles at the 70.0¢ rate.

• Communicate the new rate to employees and clarify that commuting is not reimbursable.

• Refresh policies and expense systems (receipts/logs, date‑based rate logic).

• Confirm caps if you use special methods: the IRS maximum standard automobile cost under a FAVR plan and the $61,700 IRS FMV cap for cents‑per‑mile or fleet‑average valuation.

• Apply election rules: Standard mileage must be elected in year one for owned vehicles; leased vehicles must use it for the entire lease term if chosen.

• Check state expense‑reimbursement laws (some states require full reimbursement beyond federal tax rules).

• Retain substantiation (contemporaneous mileage logs).

Additional Information

What are FAVR and valuation caps?

• FAVR (Fixed‑and‑Variable‑Rate) plans reimburse using a mix of fixed and per‑mile amounts and are subject to a maximum standard automobile cost.

• Employers using cents‑per‑mile or fleet‑average valuation for employer‑provided vehicles must ensure the vehicle’s FMV does not exceed the annual cap.

Key Risks for Employers

• Over or under‑reimbursing mileage (taxability issues for amounts paid above the IRS rate or lacking substantiation).
• Applying the wrong year’s rate based on report date instead of drive date.
• Misclassifying commuting as business mileage.
• Ignoring state reimbursement mandates, leading to wage claims or penalties.
• Exceeding the FMV cap when using cents‑per‑mile or fleet‑average valuation.
• Missing election rules for owned/leased vehicles or poor recordkeeping under accountable plans.

For additional details:

• IRS – Mileage Press Release – IR-2025-128, December 29, 2025
• IRS – Notice-2026-10 – 2026 Optional Standard Mileage Rates

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