Organizations that reimburse employees for business use of their personal vehicles have an important midyear update to make.
Effective July 1, 2026, the IRS optional standard mileage rate increased from 72.5 cents to 76 cents per business mile. The 3.5-cent increase reflects recent increases in fuel prices and other vehicle operating costs, according to IRS Announcement 2026-11.
Because the change took effect in the middle of the year, employers will need to apply two different rates when reviewing 2026 mileage reimbursements:
- January 1–June 30, 2026: 72.5 cents per business mile
- July 1–December 31, 2026: 76 cents per business mile
For small businesses, churches, nonprofits, schools and other organizations, updating the reimbursement rate promptly can help maintain accurate expense reporting, provide fair reimbursement to employees and avoid unnecessary payroll or accounting corrections.
What Is the Federal Standard Mileage Rate?
The standard mileage rate is an optional rate established by the IRS to calculate the deductible or reimbursable cost of using a personal vehicle for approved business purposes.
The business mileage rate applies to cars, vans, pickup trucks and panel trucks. It applies regardless of whether the vehicle is powered by gasoline, diesel, electricity or a hybrid system.
The rate is intended to account for more than fuel. It reflects certain fixed and variable costs associated with operating a vehicle, including:
- Fuel
- Maintenance and repairs
- Insurance
- Registration
- Depreciation
- Tires and other operating costs
It is important to understand that 76 cents per mile is the optional IRS standard mileage rate—not a universal federal requirement that every employer reimburse employees at that amount. Organizations should review their reimbursement policies, accountable-plan requirements, employment agreements and any applicable state or local laws before determining their rate.
Why Did the Rate Change Midyear?
The IRS originally established a business mileage rate of 72.5 cents per mile for 2026. However, recent increases in fuel prices led the agency to revise the rate for expenses incurred beginning July 1.
Midyear mileage adjustments are unusual, but they have happened before when vehicle operating costs changed significantly.
The new rate represents an increase of approximately 4.8%. While 3.5 cents per mile may appear modest, the difference can become meaningful for employees who drive frequently to visit clients, attend meetings, make deliveries or travel between work locations.
For example, an employee who drives 1,000 approved business miles after July 1 would receive:
- $725 at the former rate
- $760 at the revised rate
- A difference of $35
Across multiple employees and thousands of miles, the change can have a noticeable impact on an organization’s travel budget.
Which Rate Should Employers Use?
The correct rate depends on when the employee incurred the business travel expense.
The 72.5-cent rate continues to apply to eligible business mileage incurred before July 1, 2026. The 76-cent rate applies to eligible mileage incurred on or after that date.
IRS guidance also states that the revised rate applies to mileage allowances paid to an employee on or after July 1 when the related transportation expense was also incurred on or after July 1. The earlier rate continues to apply when either the reimbursement was paid before July 1 or the underlying travel occurred before that date.
That means employers should not apply the new rate retroactively to mileage driven during the first half of the year simply because the reimbursement request was submitted later.
What Employers Should Do Now
Organizations that reimburse employee mileage should take several practical steps.
- Update the mileage reimbursement policy
Revise written policies to show both 2026 rates and their effective dates. Clearly explain that the applicable rate is based on the date the business mileage occurred.
- Update accounting and expense systems
Change the mileage rate in expense-management, accounts-payable and reimbursement systems. If the system permits effective dating, retain the 72.5-cent rate for travel through June 30 and add the 76-cent rate beginning July 1.
- Review outstanding reimbursement requests
Examine mileage reports that include travel on both sides of the July 1 effective date. Those reports may need to be divided so each trip is calculated at the correct rate.
- Communicate the change to employees
Notify employees who drive their personal vehicles for business. A brief announcement should identify the new rate, effective date and documentation employees must provide.
- Review travel budgets
Organizations with employees who drive frequently may need to adjust departmental budgets, grant allocations or project estimates for the remainder of the year.
- Maintain complete mileage records
Employees should document the date, destination, business purpose and number of miles for every reimbursable trip. Commuting between an employee’s home and regular work location is generally considered personal travel, not business mileage.
Payroll Partners Tip
Do not replace every 2026 mileage entry with the new rate. Configure your process to preserve the 72.5-cent rate through June 30 and apply 76 cents beginning July 1.
Reimbursement reports covering both periods should separate mileage by travel date. A simple review now can prevent overpayments, underpayments and time-consuming corrections later.
Other 2026 Mileage Rates
The IRS also revised the medical and eligible moving mileage rate for the second half of 2026. The current federal rates are:
| Mileage purpose | Jan. 1–June 30 | July 1–Dec. 31 |
| Business | 72.5 cents | 76 cents |
| Medical | 20.5 cents | 23.5 cents |
| Qualified moving | 20.5 cents | 23.5 cents |
| Charitable service | 14 cents | 14 cents |
The charitable mileage rate remains unchanged because it is set by federal law. The IRS limits the moving-expense rate to eligible military and certain other qualifying moves. The complete rate schedule is available on the IRS standard mileage rates page.
Common Mileage Reimbursement Mistakes to Avoid
Employers should watch for several common errors:
- Applying 76 cents to mileage incurred before July 1
- Continuing to use 72.5 cents for travel after June 30
- Reimbursing ordinary commuting mileage
- Accepting mileage totals without dates or business purposes
- Failing to update expense-reporting software
- Combining personal and business mileage
- Treating reimbursements as automatically tax-free without proper documentation
- Overlooking state-specific reimbursement requirements
Keep Mileage Reimbursements Simple and Accurate
A midyear rate change can create confusion, especially when organizations rely on spreadsheets, manual expense reports or multiple approval processes. Clear policies, accurate documentation and properly configured systems can make the transition much easier.
Payroll Partners helps small businesses, churches, nonprofits and schools simplify payroll-related processes, maintain confidence in their records and provide employees with dedicated live support.
Need help reviewing your payroll or reimbursement processes?
Contact Payroll Partners to learn how our payroll, timekeeping and human capital management solutions can help your organization simplify processes, improve accuracy and build greater confidence.
This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.
