Special Alert: IRS Increases Mileage Rate Retroactive to July 1, 2026

Business travel just got more expensive. On July 13, 2026, the IRS surprised employers and announced that the standard mileage rate for business travel increased to 76 cents per mile, retroactive to July 1, 2026, up from 72.5 cents earlier this year. The change is in response to rising gas prices and will apply for the rest of 2026.

The IRS also increased the mileage rate for moving and medical expenses to 23.5 cents per mile, up from 20.5 cents. The charitable mileage rate remains unchanged at 14 cents per mile.

Remember, these rates apply to electric and hybrid-electric automobiles, as well as gasoline- and diesel-powered vehicles.

Why Does the IRS Mileage Rate Matter?

California Labor Code section 2802 requires employers to reimburse employees for all reasonable and necessary business expenses, such as the use of a personal vehicle for business travel. Importantly, California’s Labor Commissioner has found that employees should be reimbursed not only for the cost of gas, but also the cost of maintaining insurance, wear and tear on the vehicle, etc. The Labor Commissioner has determined that using the IRS mileage rate is “reasonable” for complying with California law, because it takes these additional factors into account.

If you choose to use a different reimbursement method, the burden is on you to prove that it sufficiently covers all reasonable and necessary costs.

For this reason, we encourage employers to use the standard mileage rate to pay tax-free reimbursements to employees who use their own vehicles for business as an alternative to tracking actual costs for operating an automobile for business use.

Is all Business Travel Eligible for Reimbursement? 

Employers should reimburse all employees (both exempt and non-exempt) for mileage when they use their personal vehicle for work purposes, beyond their normal commute. This includes:

• When an employee is required to report to a work site other than their regular site. In that case, you should reimburse mileage for travel in excess of the employee’s normal commute to their regular site.
  • For example, if an employee typically travels 15 miles to their regular worksite, but you are requiring them to travel to a client site that is 30 miles away from their home, you should reimburse them for the extra 15 miles.
• Once the workday has started, reimburse mileage for all travel between work sites or other locations, except for their regular commute home.
• Be sure to also reimburse employees for required travel to attend an out-of-town business meeting, training session, or any other event.

Don’t forget: you must also separately compensate non-exempt employees for their time worked during business travel beyond their commute. This is because required business travel is considered “hours worked” (i.e., on the clock time) and is compensable.

Next Steps:

1. Notify your controller/bookkeeper or whoever facilitates your expense reimbursements of this new increase.
2. Make sure the increase is retroactive to July 1, 2026, and reimburse your employees accordingly.
3. Consider whether you can cut costs on business travel via carpooling, company vehicles, alternate transportation, or remote work when feasible.