The Internal Revenue Service has announced a higher standard mileage rate for 2026, a change that may affect how companies reimburse employees, track vehicle expenses, and manage tax deductions.
Beginning January 1, 2026, the optional standard mileage rate for business use increases to 72.5 cents per mile, up 2.5 cents from 2025 and 5.5 cents above the 2024 rate. The adjustment comes even as fuel prices have moderated, reflecting the IRS’s broader analysis of vehicle ownership and operating costs, not just gasoline.
For many businesses, especially those with sales teams, field staff, or executives who regularly use personal vehicles for work, this change is more than a technical update. It directly affects reimbursement policies, taxable income calculations, and budgeting for the coming year.
Why the mileage rate matters to your business
The standard mileage rate is intended to capture the full cost of operating a vehicle, including fuel, maintenance, insurance, depreciation, and other fixed and variable expenses. When the rate goes up, it generally means:
- Higher deductible expenses for owners and employees who use personal vehicles for business.
- Higher reimbursement costs for companies that pay employees based on the IRS rate.
- Potential policy decisions about whether to use the standard mileage method or actual expense tracking.
The 2026 rate applies equally to gasoline, diesel, hybrid, and fully electric vehicles. Even though federal tax credits for purchasing electric vehicles have expired, the IRS continues to treat EVs the same as other vehicles for mileage purposes.
Other mileage rates for 2026
In addition to the business rate, the IRS adjusted several other mileage figures effective January 1:
- Medical mileage: 20.5 cents per mile, down half a cent from 2025
- Moving mileage: 20.5 cents per mile for qualifying active-duty military members and certain intelligence community employees, also down half a cent
- Charitable mileage: 14 cents per mile, unchanged and set by statute
While these rates may be less relevant to most businesses, they can matter for owners who itemize deductions or support charitable travel through their organizations.
Choosing the right method: standard vs. actual expenses
Business owners should also pay attention to the rules governing mileage methods:
- Owned vehicles: If you use the standard mileage rate in the first year a vehicle is available for business use, you retain the flexibility to switch between the standard rate and actual expenses in later years.
- Leased vehicles: Once you choose the standard mileage rate for a leased vehicle, you must continue using it for the entire lease term, including renewals.
This distinction is important for long-term planning. For executives who lease vehicles or businesses that reimburse leased vehicles, the initial choice can lock in your tax treatment for years.
Planning considerations for 2026
With the higher mileage rate, now is a good time for businesses to:
- Review employee reimbursement policies and ensure they align with IRS guidance.
- Evaluate whether the standard mileage rate or actual expense method produces a better tax outcome.
- Update budgets and forecasts to reflect higher per-mile reimbursement costs.
- Communicate changes clearly to employees who submit mileage reports.
As with most tax-related decisions, the right approach depends on usage patterns, vehicle types, and administrative capacity. For many companies, the standard mileage rate remains the simplest option. For others with high vehicle costs or specialized fleets, actual expense tracking may still make sense.
Either way, the 2026 increase is a reminder that mileage policies are not “set and forget” decisions. They deserve a fresh look as costs, tax rules, and business travel patterns evolve.
Bill Healey can be reached at bh@healeyassociates.com or (760) 320-2107.
