The Internal Revenue Service has raised its optional standard mileage rate for business use of a personal vehicle to 76 cents per mile, effective July 1, 2026.
The increase from 72.5 cents per mile represents a midyear adjustment that affects employers across the United States who tie their reimbursement practices to the IRS standard rate.
Employers that use the IRS rate as the basis for employee mileage reimbursement should update their policies and payroll systems to reflect the new figure immediately.
The Fair Labor Standards Act does not require employers to use the IRS rate, but the consequences of failing to adequately reimburse employees can be significant under federal wage law.
Unreimbursed or under-reimbursed business vehicle expenses can create minimum wage and overtime liability if those costs effectively reduce a nonexempt employee’s wages below legally required levels.
In a pair of 2024 decisions, the U.S. Court of Appeals for the Sixth Circuit rejected the automatic use of the IRS mileage rate for determining whether delivery drivers’ vehicle expenses resulted in minimum-wage violations.
The Sixth Circuit also rejected the Department of Labor’s Field Operations Handbook position that the IRS rate can be used for FLSA purposes where actual costs are not available.
The appeals court further rejected an employer’s generic reasonable approximation approach to reimbursing vehicle expenses, though it did not offer a single FLSA-compliant formula as a replacement.
That legal uncertainty underscores the need for employers to implement an expense reimbursement method that reasonably approximates actual costs incurred by employees who drive for work.
State law adds another layer of complexity, with several jurisdictions including California, Illinois, and Massachusetts requiring reimbursement of necessary business expenses such as personal vehicle use.
While state laws generally do not make the IRS rate a universal statutory mandate, the rate may serve as an important benchmark, safe harbor, or practical proxy for reasonableness in those jurisdictions.
Employers operating across multiple states should evaluate whether flat mileage allowances, per-trip payments, or below-IRS rates are sufficient to capture employees’ actual work-related vehicle costs.
Payroll and expense platforms should be checked to confirm they apply the correct mileage rate based on the specific date expenses were incurred, not a blanket figure applied across the full year.
Employers are advised to audit whether current reimbursement rates are sufficient to avoid minimum wage or overtime exposure, particularly for lower-wage workers whose driving is central to their role.
Accurate records of mileage, business purpose, dates of expense, and reimbursement calculations should be maintained to support a defensible position in the event of a wage claim or audit.