Understanding IRS Standard Mileage Rates

If you offer reimbursement to employees for their driving and business mileage, or track the use of vehicles in any way, then it is likely that the IRS mileage rate will likely pop in your mind every year. Each year, the rate changes. HR and business owners have already been juggling payroll deadlines, as well as compliance regulations and increasing costs. Keeping up with mileage rate adjustments may feel like a burden to keep track of.

The problem is that the mileage adds up quickly. Fuel prices fluctuate. Maintenance of vehicles isn’t going to get cheaper. If mileage isn’t managed correctly, it could cause tax problems for employers as well as employees.

This article will look at how to use the latest IRS Standard Mileage Rate, how it compares with previous years as well as what’s included and exempted, and who is eligible to use it and the impact it has on taxes. By the end, you’ll feel comfortable that you’re using the new IRS mileage rate properly and be aware of how it will affect your tax plan.

What’s the IRS Standard Mileage Rate?

The IRS mileage rate was designed to ease the process of accounting for vehicle-related expenses. Instead of filing receipts for each gallon of gasoline and oil change, or repair bill, it is possible to determine a per-mile deduction or reimbursement using the mileage standard rate. It’s a good method to record the expenses you incur when traveling for medical, business, charitable and moving reasons.

In the case of many companies, this method is simpler to control and more reliable than keeping track of actual expenses for vehicles. It also establishes a uniform baseline, that is, IRS-approved benchmark for deductions and reimbursements.

What is the IRS Standard Mileage Rate for 2026?

For 2026, the Internal Revenue Service adjusted the standard mileage rates in order to reflect current cost data and inflation.

Starting January 1, 2026 the average mileage rates will be:

• Use for business: 72.5 cents per mile which is an increase of 2.5 cents over 2025.
• Medical reasons: 20.5 cents per mile that’s a drop by half a cent compared to 2025.
• Moving purpose: 20.5 cents per mile for active-duty soldiers in the Armed Forces and qualifying members of the intelligence community.
• Charitable organisations: 14 cents per mile, unchanged and set by statute.

These rates are applicable to diesel, gasoline, hybrids, as well as fully electric vehicles.

The rise in the business mileage rates reflects the rising fixed and variable vehicle costs, like depreciation, insurance, fuel and maintenance. Moving and medical rates, however, are based on the cost of variable items, which is the reason they vary from the business mileage.

It’s important to remember that the use of the standard mile rate is an option. Taxpayers may choose to calculate the actual expense of their vehicle; however, once you have decided on one method, there are guidelines on when and how you can switch.

What’s included In the Mileage Rate of 2026?

This IRS Standard Mileage Rate has been created to make it easier to account for vehicle expenses to be used for medical, business, charitable, or moving purposes. This is what it covers:

1. Fuel Costs: A major part of the expense is to purchase diesel or gasoline.
2. Maintenance and repair: Routine wear and tear of the vehicle, oil change, tire rotations, and any other regular maintenance is included.
3. Insurance: It is based on a part of the auto insurance costs.
4. Depreciation: The amount you calculate to cover the depreciation of your vehicle over the course of time is included.
5. Taxes and Registration: This price includes an average of the vehicle registration costs and personal property tax.

What is not included within the mileage rate?

Although the standard mileage rate is comprehensive, but there are some costs that are not covered:

1. Parking Fees & Tolls: These expenses do not count in the base rate and have to be accounted for separately.
2. Fines and violations: Fines or tickets that are incurred in the course of the business are not covered.
3. The interest on a car Loan: The interest that is paid on loans to vehicles cannot be included as part of the miles rate.
4. Lease Payments: If you lease vehicles, the normal rate doesn’t cover lease payment.
5. Personal Use: All expenses that are incurred in an individual use for the vehicle are exempted.

Who is eligible to use the standard mileage rate?

The standard mileage rate can be utilized by:

• Independent contractors and self-employed persons to drive for work-related reasons.
• Employees who use private vehicles to conduct business reasons are bound by the policy of reimbursement by their employer.
• Active-duty soldiers in the Armed Forces for moving under instructions.
• People who drive for medical reasons or to support charitable groups.

What Does This Mean for My Taxes?

For HR professionals and business owners, knowing the tax implications of these changes are crucial.

• Self-employed people can deduct the mileage rate for business trips that they drive from their tax-deductible income.
• Employers that reimburse employees less than the standard rate won’t be taxed as income. However, reimbursements that exceed what is considered standard will be taxed.
• Employees are reminded that mileage for business trips that are reimbursed is no longer tax-deductible as per the Tax Cuts and Jobs Act and is not applicable to certain groups, such as Armed Forces reserves and fee-based state or local government officials.
• It’s crucial to keep exact records of mileage to support deductions and reimbursements.

Conclusion

The IRS standard mileage rate is a reflection of the constant reality that operating a vehicle isn’t going to be cheaper, particularly for companies that depend on employee travel. Knowing the current mileage rate as well as what it covers and how it impacts taxes will help you remain on track and avoid a tax time surprise.

If the mileage reimbursement and deduction rules seem confusing, that’s not unusual. They affect payroll, tax and policy-related decisions all at once. Reviewing your mileage policies now will help you avoid headaches and time later. Also, ensure that you’re using the IRS mileage rate in the correct way going forward. Contact  Parr & Ibarra CPA in Keller, Texas for more details.