Federal Mileage Rate: What It Means for Employers

What it means in practice

People usually mean the IRS standard mileage rate when they say "federal mileage rate." The IRS publishes optional rates each year for figuring the deductible costs of running an automobile for business, charitable, medical or moving purposes (Notice 2026-10). The business rate comes from an annual study of the fixed and variable costs of operating an automobile, done for the IRS by an independent contractor (Notice 2026-10). The medical and moving rate reflects only the variable costs, and the charitable rate is set by statute (IRS news release IR-2025-128; Internal Revenue Code section 170(i)).

The 2026 rates and the mid-year change. Notice 2026-10, announced December 29, 2025, set the 2026 business rate at 72.5 cents a mile, the medical and moving rate at 20.5 cents, and the charitable rate at 14 cents. In Announcement 2026-11 (Internal Revenue Bulletin 2026-29, dated July 13, 2026), the IRS raised the business rate to 76 cents and the medical and moving rate to 23.5 cents, saying the change "results from recent increases in the price of fuel." The charitable rate stayed at 14 cents. The IRS standard mileage rates page lists both 2026 periods. The new rates apply to mileage allowances paid to an employee on or after July 1, 2026, and only for expenses the employee incurred on or after July 1. The old rates still apply to allowances paid before July 1, or for expenses incurred before July 1. The announcement says all other provisions of Notice 2026-10 remain in effect.

Who uses which rate. Employers use the business rate to reimburse employees who drive their own cars for work. Self-employed people and some others use it to figure a deduction. IRS Publication 463 (2025) says the rate cannot be used for five or more cars used at the same time, as in fleet operations. A car owner who wants the rate must choose it in the first year the car is used for business, and a leased car must stay on it for the whole lease. Under the One, Big, Beautiful Bill Act, most employees cannot take an itemized deduction for unreimbursed employee travel, with exceptions such as reservists and eligible educators (Notice 2026-10). The moving rate is limited to active-duty Armed Forces members moving under orders and certain intelligence community members.

How the accountable plan rules work. Publication 15 (2026) says a reimbursement arrangement is an accountable plan only if employees (1) paid or incurred allowable expenses while working for you, (2) substantiate them within a reasonable period, and (3) return any excess within a reasonable period. Amounts paid under an accountable plan are not wages and are not subject to income tax withholding, Social Security, Medicare or FUTA taxes. A reasonable period generally means an advance within 30 days of the expense, accounting within 60 days and return of any excess within 120 days. Another option is a periodic statement, at least quarterly, that asks the employee to return or account for amounts within 120 days.

What the employee must substantiate. Rev. Proc. 2019-46 treats the employer as having substantiated the lesser of the allowance paid or the business standard mileage rate times the substantiated business miles. The employee still has to show the time, place (or use) and business purpose of the driving. For car expenses, Table 5-1 of Publication 463 lists the mileage for each business use and total miles for the year.

When reimbursement becomes wages. Under 26 CFR 1.62-2(h)(2)(i)(B) and Rev. Proc. 2019-46, the part of an allowance for substantiated miles that exceeds the rate is treated as paid under a nonaccountable plan. If it is paid as a reimbursement, it is subject to withholding and employment taxes in that payroll period. For an advance, the deadline is the first payroll period after the miles are substantiated. Miles not substantiated, and amounts not returned within a reasonable period, are also wages. Publication 15 treats nonaccountable plan payments as supplemental wages. If an arrangement routinely pays more than can be deemed substantiated without requiring substantiation, repayment or wage treatment, Rev. Proc. 2019-46 treats every payment under it as wages.

Form W-2 reporting. The 2026 General Instructions for Forms W-2 and W-3 say to use box 12 code L only when a per diem or mileage allowance exceeds the amount treated as substantiated. Box 12 shows only the substantiated, nontaxable part, and boxes 1, 3 and 5 include the excess. An allowance at or below the rate for substantiated miles is not reported as wages on the W-2 (Rev. Proc. 2019-46; Publication 463). The same rules govern per diem travel allowances.

FAVR plans. A fixed and variable rate (FAVR) allowance combines periodic fixed payments for costs such as depreciation and insurance with variable payments for gas, oil, tires and maintenance, each paid at least quarterly (Rev. Proc. 2019-46). A FAVR allowance must cover at least five employees in total at all times during the year, and a majority of those covered cannot be management employees. Projected annual business mileage cannot be less than 6,250 miles, and the business use percentage cannot exceed 75%. For 2026 the standard automobile cost cannot exceed $61,700 (Notice 2026-10).

FLSA rules. The Fair Labor Standards Act sets its own test, separate from the tax rules. Section 7(e)(2), 29 U.S.C. 207(e)(2), leaves out of the regular rate "reasonable payments for traveling expenses" incurred for the employer and properly reimbursable. Under 29 CFR 778.217, a reimbursement is excluded if it reasonably approximates the expense, and any disproportionately large excess goes into the regular rate used for overtime. A travel reimbursement that is the same as or less than the Federal Travel Regulation maximum or IRS guidance under 26 CFR 1.274-5(g) or (j) is per se reasonable. Paying more does not by itself make a reimbursement unreasonable. Reimbursing normal commuting costs is not excluded, so those payments raise the regular rate (778.217(d)). DOL Fact Sheet #56A also lists travel expenses among reimbursements that may be excluded.

Minimum wage and "free and clear" pay. Under 29 CFR 531.35, wages must be paid "free and clear." Requiring employees to provide items specifically required for the work violates the FLSA in any workweek where their cost "cuts into the minimum or overtime wages required." In Opinion Letter FLSA2020-12 (August 31, 2020), the Wage and Hour Division applied this to delivery drivers who use their own cars. Their wages minus vehicle expenses may not fall below the federal minimum wage of $7.25 an hour (29 U.S.C. 206). The letter says the IRS rate is optional: employers may reimburse actual expenses or another reasonable approximation. Whether fixed costs must be included depends on whether they are incurred primarily for the employer's benefit, and a percentage of a driver's net sales "is unlikely" to be a reasonable approximation. FLSA2024-01 (November 8, 2024) repeats that WHD endorses no specific method.

The GSA rate is a separate rate. The General Services Administration sets privately owned vehicle (POV) mileage rates for federal employees on official travel under the Federal Travel Regulation. GSA Bulletin FTR 26-03 says that under 5 U.S.C. 5707, GSA sets the automobile rate as the single standard mileage rate set by the IRS. From July 1, 2026, the rates are 76 cents for an automobile and 23.5 cents if a government car was authorized and available but the traveler drove their own. Motorcycles get 74 cents and airplanes $1.935. The motorcycle and airplane rates come from GSA's own review, not the IRS.

Personal use of a company vehicle. When an employee uses an employer-provided car for personal driving, the value is imputed income. Under the cents-per-mile rule in Publication 15-B (2026), the employer multiplies personal miles by the standard mileage rate. The vehicle must be regularly used in the business or driven at least 10,000 miles a year, mainly by employees. For 2026, the vehicle's value when first made available for personal use cannot exceed $61,700 (Notice 2026-10). The rate includes maintenance, insurance and fuel, less up to 5.5 cents if the employer does not provide fuel. 26 CFR 1.61-21(e)(1)(i) says the cents-per-mile rate applies "prospectively from the first day of the taxable year following the date of publication." Announcement 2026-11 addresses deductions and mileage allowances but does not mention the valuation rule, so check with the IRS which 2026 rate applies to personal-use valuations.

Where states differ. The FLSA rules above are the federal baseline, and some states add their own reimbursement duties. Check your state's labor department through DOL's state labor offices page. Example: the California Labor Commissioner says an employee "is entitled to be reimbursed by his or her employer for all expenses or losses incurred in the direct consequence of the discharge of the employee's work duties" (Labor Code Section 2802). In a November 5, 1998 opinion letter, the Commissioner's office said it generally finds the IRS rate reasonable. Paying the IRS rate is not an irrebuttable presumption of compliance, though. An employee who proves higher actual costs, such as for insurance the employer requires, must be reimbursed for them.

Example 1: miles that cross July 1. A Remindax illustration with assumed numbers. An employee drives 300 substantiated business miles in late June 2026 and is reimbursed on July 10. Because the expenses were incurred before July 1, the 72.5-cent rate applies: $217.50 is deemed substantiated. For 400 miles driven in July and reimbursed in August, the 76-cent rate applies: $304.00 (Announcement 2026-11).

Example 2: paying above the rate. An employer reimburses 80 cents a mile and does not require the excess back. An employee substantiates 1,000 business miles driven in September 2026, and the employer reimburses $800. At 76 cents, $760 is deemed substantiated and the $40 balance is wages for that payroll period. The W-2 shows $760 in box 12 with code L, and boxes 1, 3 and 5 include the $40. At the 2026 FICA rates (Publication 15), the employee owes $2.48 of Social Security tax and $0.58 of Medicare tax on it.

Example 3: the minimum wage floor. A non-exempt driver earns $7.25 an hour for 30 hours, or $217.50, and drives 100 miles for the employer that week without reimbursement. If the vehicle costs reasonably approximate $76 (100 miles at the 76-cent IRS rate), wages net of expenses are $141.50, below the $217.50 minimum. FLSA2020-12 says an employer violates the FLSA when wages minus such expenses fall below the minimum wage for a non-overtime workweek (29 CFR 531.35). At $10.00 an hour, the same week nets $224.00 ($300.00 minus $76.00) and stays above the floor.

Recordkeeping. Publication 15 says to keep employment tax records for at least 4 years. FLSA2020-12 notes that FLSA rules do not require records of employees' actual expenses, only of additions to or deductions from wages and how they were determined.

Questions employers ask. Is an employer required to use the IRS rate? No. Federal tax law lets you reimburse actual expenses, a lower rate or a FAVR allowance; the rate only caps what is deemed substantiated (Rev. Proc. 2019-46). Can an employer pay less? For tax purposes, yes, but the FLSA floor and state rules such as California's still apply. Is there a separate rate for electric cars? No. IR-2025-128 says the rates apply to fully electric and hybrid automobiles as well as gasoline and diesel ones. Confirm specifics with a qualified tax professional.

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