IRS Raises Standard Mileage Rate Mid-Year: What California Employers Should Know About Mileage Reimbursement

09.10.2026

Effective July 1, 2026, the Internal Revenue Service (“IRS”) increased its standard mileage rate for business use of a personal vehicle to 76 cents per mile, up from 72.5 cents per mile. The new, higher mileage rate applies to eligible business miles driven on or after July 1, 2026. Miles driven before that date remain subject to the rate in effect at the time the miles were driven. Prior mileage rates are available on the IRS’s Standard Mileage Rates webpage.

For California employers, the increase is a timely reminder to confirm they are appropriately reimbursing employees who drive their personal vehicles for work.

Reimbursement Obligation Under Labor Code Section 2802

California Labor Code section 2802 requires an employer to indemnify employees for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” This obligation includes a duty to reimburse employees for the reasonable and necessary expenses associated with the employee’s use of their personal vehicle for work-related travel when the employer requires or permits that use.

In Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal.4th 554 (Cal. 2007), the California Supreme Court recognized three methods an employer may use to satisfy the obligation to reimburse employees for reasonable and necessary work-related vehicle expenses:

Actual expense method – this method involves reimbursing the employee’s documented costs for fuel, maintenance, repairs, insurance, registration, and depreciation, apportioned to business use. This is the most accurate method of reimbursement, but the most burdensome for both employers and employees.
Mileage reimbursement method – this method involves multiplying business miles driven by a per-mile rate, commonly the IRS standard mileage rate, which is “widely used and accepted” for approximating vehicle costs.
Lump-sum method – this method involves paying a fixed car allowance, per diem, or gas stipend, provided the amount is sufficient to fully reimburse the employee’s actual, reasonable, and necessary work-related vehicle expenses.

Using the IRS Rate Is Permissible—But It Does Not Cap What Employees Are Owed

When an employer uses the “mileage reimbursement method,” the IRS standard mileage rate is a convenient benchmark, and California’s Division of Labor Standards Enforcement (“DLSE”) has long treated it as a satisfactory rate for purposes of Labor Code section 2802 reimbursement, provided there is no evidence indicating that the employee was not fully reimbursed.

Employers should keep two limitations in mind. First, because the IRS mileage rate is only an approximation of possible vehicle expenses, an employee remains entitled to full reimbursement of their actual, reasonable, and necessary work-related vehicle costs. If the employee can show that their work-related vehicle expenses exceeded the amount of reimbursement paid by the employer, then the employer must make up the difference. The same principle applies to lump-sum allowances, which employees may always challenge as insufficient. Second, paying the IRS standard mileage rate is not legally required – rather, the IRS rate is a widely-used approximation of the reimbursement that the employee may actually be owed.

The Ordinary Commute Is Generally Not Reimbursable

Labor Code section 2802’s duty to reimburse employees’ work-related vehicle expenses applies to business miles, excluding the employee’s “ordinary commute” (i.e., travel between home and the employee’s regular worksite before and after the workday). As a general rule, the employee’s ordinary commute is not compensable working time and the related mileage is not reimbursable. By contrast, travel during the workday for business purposes, such as driving from the office to a client meeting, jobsite, or other required business location, should be treated as compensable working time and reimbursable business mileage.

Key Takeaways for Employers

We recommend that employers do the following:

If the mileage reimbursement method is used, employers should update their reimbursement policies and payroll systems to apply the 76-cent per-mile rate to eligible business miles driven on or after July 1, 2026, while applying the 72.5-cent per-mile rate to miles driven between January 1 and June 30, 2026.
Audit the reimbursement method used—whether mileage-based, actual expense-based, or through a lump-sum allowance—to confirm it fully reimburses employees for necessary business expenses.
Train employees and supervisors on what qualifies as business miles that qualify for reimbursement and how to report reimbursable travel accurately.

Employers with questions regarding Labor Code section 2802’s reimbursement requirements may contact the authors of this post or their usual employment law counsel at AALRR.