Rising IRS mileage rates: Your reimbursement practices may need a tune-up

The Internal Revenue Service (IRS) has raised the optional standard mileage rate for business use of an automobile for the second half of 2026. Effective July 1, the business mileage rate increased from 72.5 cents per mile to 76 cents per mile. Employers that use the IRS rate for employees’ mileage reimbursement should adjust their reimbursement policies to track the IRS rate.

Federal wage and hour considerations

The Fair Labor Standards Act (FLSA) doesn’t require use of the IRS rate for reimbursement of mileage costs. Unreimbursed or under-reimbursed business expenses, however, can create minimum wage and overtime liability if those expenses effectively reduce a nonexempt employee’s wages below the required minimum wage.

In a pair of 2024 decisions, the U.S. Court of Appeals for the 6th Circuit rejected the automatic use of the IRS mileage rate for determining whether delivery drivers’ vehicle expenses resulted in minimum-wage violations. The court rejected the Department of Labor’s (DOL) Field Operations Handbook (FOH), which says the IRS rate can be used for FLSA purposes where actual costs aren’t available. 

The 6th Circuit also rejected an employer’s generic “reasonable approximation” approach to reimbursing vehicle expenses. While the appeals court decisions struck down both reimbursement approaches, it didn’t offer a single, FLSA-compliant formula in their place to calculate vehicle expenses, underscoring the need for employers to implement an expense reimbursement method that reasonably approximates actual expenses.