IRS Boosts 2026 Mileage Rate to 72.5 Cents Amid Soaring Car Costs

BOSTON, MA – December 29, 2025 – The Internal Revenue Service (IRS) has announced that the standard mileage rate for the business use of a vehicle will increase to 72.5 cents per mile for 2026. This marks a 2.5-cent increase from the 70-cent rate in 2025 and will take effect on January 1, 2026. The new rate, detailed in IRS Notice 2026-10, reflects the rising costs associated with owning and operating a vehicle, providing an updated benchmark for businesses that reimburse employees and for individuals calculating deductible driving expenses.

The annual rate is calculated based on an analysis of vehicle cost data provided by Motus, a leader in vehicle reimbursement and risk mitigation solutions. The firm's data, which has underpinned the IRS rate since 1981, is gathered from a vast pool of drivers across various industries and regions, capturing trends in both fixed and variable vehicle expenses. While the business rate has climbed, the rate for medical and moving purposes will see a slight decrease to 20.5 cents per mile, while the rate for charitable driving remains unchanged at 14 cents per mile, as it is set by statute.

Beyond the Pump: The Real Costs Driving the Rate Hike

While drivers may notice fluctuations at the gas pump, the 2026 mileage rate increase is largely driven by less visible, yet more persistent, expenses. According to the data analysis, a significant portion of the hike is attributable to the climbing costs of vehicle ownership itself, even as fuel prices have provided some relief.

Vehicle acquisition costs have continued their upward trajectory, making new and used cars more expensive to purchase. This directly impacts depreciation, which is the single largest fixed cost of owning a car. For 2026, the portion of the business standard mileage rate treated as depreciation is 35 cents per mile, a notable increase of 2 cents from the 33-cent component in 2025. This reflects not only higher initial purchase prices but also how quickly vehicles lose value.

Furthermore, the costs to insure, maintain, and repair vehicles have all risen year-over-year. Auto insurance premiums are projected to continue their climb into 2026, fueled by several factors. Modern vehicles, packed with advanced driver-assistance systems (ADAS), sensors, and complex electronics, are significantly more expensive to repair after even minor incidents. This, combined with general inflation affecting parts and labor, and a higher frequency of claims as more people return to the roads, has pushed premiums higher.

Interestingly, this overall cost increase comes at a time when fuel prices have been trending downward. Average gasoline prices in 2025 were approximately 16 cents per gallon lower than in 2024. Projections from the U.S. Energy Information Administration (EIA) suggest this trend may continue, with forecasts pointing to lower average prices in 2026 due to moderating crude oil costs and increasing vehicle fuel efficiency. However, this relief at the pump was not enough to offset the steep increases in depreciation, insurance, and maintenance, leading the IRS to adjust the overall reimbursement rate upward.

A Historical Perspective on Driving Reimbursement

The 2026 rate of 72.5 cents per mile continues a distinct upward trend observed over the past several years, painting a clear picture of the economic pressures on vehicle-dependent businesses and workers. An examination of historical rates reveals a steady climb, punctuated by moments of sharp economic change.

Just a decade ago, in 2016, the rate was 54 cents per mile. The journey to the current rate includes several notable adjustments:
* 2019: 58 cents per mile
* 2021: 56 cents per mile (a slight dip during the pandemic)
* 2022: A rare mid-year adjustment from 58.5 to 62.5 cents
* 2023: 65.5 cents per mile
* 2024: 67 cents per mile
* 2025: 70 cents per mile

The mid-year hike in 2022 was a significant event, prompted by record-high fuel prices and soaring inflation that rendered the initial rate inadequate. This move, similar to an adjustment made in 2008 during another period of spiking oil prices, highlights the IRS's ability to respond to extraordinary economic conditions. The subsequent steady increases in 2023, 2024, 2025, and now 2026, demonstrate that while fuel prices may have stabilized, the other underlying costs of vehicle ownership have become the primary drivers of the rate. This consistent climb underscores a new normal where vehicles are simply more expensive to own and operate than ever before.

Navigating the Financial Impact for Businesses and Employees

The updated mileage rate has direct and immediate consequences for corporate budgeting and employee compensation. As the tax-free threshold for reimbursements, the rate forces companies to re-evaluate their vehicle programs to ensure both fiscal responsibility and fairness to their mobile workforce.

For businesses, the 2.5-cent increase means higher costs for those using a standard Cents-Per-Mile (CPM) reimbursement program. A company with a team of employees driving a cumulative 500,000 business miles a year will see its reimbursement expenses increase by $12,500. This necessitates careful budget adjustments for 2026.

The announcement also brings attention to alternative reimbursement models. While CPM programs are simple and suitable for low-mileage drivers, they can be inequitable for others. A one-size-fits-all rate does not account for geographic differences in costs—for example, insurance and fuel are far more expensive in California than in Ohio. This is where a Fixed and Variable Rate (FAVR) program becomes a more accurate solution. FAVR plans reimburse employees using a combination of localized fixed payments (covering insurance, taxes, and depreciation) and a variable mileage rate (for fuel and maintenance). For 2026, the maximum standard automobile cost that can be used for a FAVR plan has also been increased to $61,700.

For employees, the higher rate means a larger tax-free reimbursement for each mile driven for their employer. However, it is critical for workers to understand that the Tax Cuts and Jobs Act of 2017 suspended the miscellaneous itemized deduction for unreimbursed employee travel expenses for most taxpayers. This means that if an employer does not reimburse for mileage, or reimburses at a lower rate, most employees can no longer deduct the difference on their personal tax returns. The primary way for employees to benefit from the standard mileage rate is through a compliant employer reimbursement program.

The Data-Driven Engine Behind the Rate

Behind the annual IRS announcement is a complex data-gathering and analysis operation conducted by Motus. The company’s foundational role, stretching back to 1981 through its parent entity, highlights the importance of robust, real-world data in setting national policy standards.

The firm's methodology involves capturing and analyzing vehicle expense trends from a massive and diverse data pool. This includes fixed costs, such as insurance, license and registration fees, and depreciation, as well as variable costs like fuel, oil, tires, and maintenance. By localizing this data down to the zip code level, the company can create a precise picture of what it truly costs to operate a vehicle in different parts of the country. This granular data is then aggregated to form the national average that informs the IRS rate.

In a competitive market for fleet management and reimbursement solutions, which includes players like Cardata, Everlance, and MileIQ, the emphasis is increasingly on technology-driven accuracy and compliance. Solutions that automate mileage capture via GPS, for example, help eliminate inaccuracies from self-reported logs and provide defensible records for tax purposes.

“The IRS standard mileage rate increase this year underscores how essential driving for work remains to both operational and financial performance,” said Phong Nguyen, CEO of Motus, in a press release. “Ensuring fair and accurate reimbursement is more important than ever; it helps organizations meet their budget goals while better supporting the employees who rely on their personal vehicles to get the job done.” This balance between corporate cost management and equitable employee support remains the central challenge the new mileage rate aims to address.