IRS Sets Record 72.5 Cent Mileage Rate for 2026 Amid Rising Car Costs

WASHINGTON, D.C. – December 29, 2025 – The Internal Revenue Service (IRS) today announced the national standard mileage rate for business use of a personal vehicle will climb to a record 72.5 cents per mile for 2026. The new rate, which takes effect on January 1, 2026, represents a 2.5-cent increase from the 70-cent rate in 2025, reflecting the persistent and escalating costs associated with vehicle ownership and operation.

This adjustment comes as businesses and their mobile employees grapple with significant inflationary pressures in the automotive sector. While average fuel prices saw a modest decline in 2025, it was not enough to offset the steep rise in other critical expenses, including vehicle acquisition costs, auto insurance premiums, and routine maintenance and repairs. The decision, detailed in IRS Notice 2026-10, underscores a complex economic landscape where the cost of keeping a car on the road continues to outpace broader inflation.

The underlying data and analysis for the rate were provided by Motus, a leader in vehicle reimbursement and mobile workforce management solutions, which has been supplying data to the IRS for this purpose since 1981.

The Anatomy of a Rate Increase

The 2026 business mileage rate is a composite figure designed to capture the average costs of operating a vehicle for business purposes. The primary driver of this year's increase is the non-fuel component of vehicle ownership. According to the data informing the rate, the costs of acquiring a new or used vehicle have continued to surge, which directly impacts the depreciation component of the mileage rate. For 2026, the portion of the business rate treated as depreciation will be 35 cents per mile, an increase from 33 cents in 2025.

Furthermore, auto insurance premiums have seen sharp increases nationwide, driven by higher repair costs and a greater frequency of complex claims. Maintenance and repair expenses have also climbed, as parts and labor become more expensive. These factors collectively pushed the overall cost calculation upward, even as average fuel prices in 2025 were reportedly 16 cents per gallon lower than in 2024.

In addition to the business rate, the IRS also announced other standard mileage rates for 2026:

• The rate for medical and moving purposes will be 20.5 cents per mile, a slight decrease of half a cent from 2025. The moving expense deduction is now available for certain members of the intelligence community, expanding it beyond active-duty military members.
• The rate for charitable driving remains unchanged at 14 cents per mile, as this figure is set by federal statute and is not adjusted for inflation.

A Historical Perspective on Driving Costs

The 72.5-cent rate for 2026 is the highest since the IRS began formally publishing the data. An analysis of historical trends reveals a rate that closely mirrors the nation's economic climate. After a period of relative stability and even decline between 2016 and 2018, when low gas prices kept rates in the mid-50-cent range, the standard mileage rate has been on a steady upward trajectory.

Recent years have been particularly volatile. The rate climbed from 56 cents in 2021 to 65.5 cents in 2023. A rare mid-year adjustment occurred in 2022, when the IRS boosted the rate from 58.5 cents to 62.5 cents in July to account for a sudden and dramatic spike in fuel prices. The consistent increases since 2021 highlight the sustained high costs of transportation, which have become a significant factor in both corporate budgeting and household finances.

The process of setting this crucial economic benchmark has relied for over four decades on data from Motus. The firm's analysis of national vehicle expense trends, which includes everything from fuel price fluctuations to tire costs and insurance premium data across different regions, provides the foundational information the IRS uses to establish a national average that aims to reflect the real-world costs faced by drivers.

The Business Bottom Line: Managing Mobile Workforce Expenses

For companies across the United States with sales teams, service technicians, or any employees who drive personal vehicles for work, the new rate has immediate financial implications. Organizations that use the IRS standard rate as their reimbursement benchmark will see a direct increase in their operational expenses. A higher reimbursement rate means higher payouts, which can strain budgets that may already be tight.

Financial and human resources departments must now decide how to adapt. Simply adopting the new 72.5-cent rate ensures tax-free reimbursement for employees but also locks in higher costs. This pressure is forcing many organizations to look beyond the simplicity of a single cents-per-mile (CPM) rate and explore more nuanced reimbursement strategies.

The challenge with a national standard rate is that it is, by definition, an average. It doesn't account for the significant cost-of-living and operating-cost variations between, for example, rural Mississippi and downtown Los Angeles. A driver in a high-cost urban area may find the rate insufficient, while a driver in a low-cost rural area might be over-reimbursed, creating inequities and potential inefficiencies for the business.

Beyond the Standard Rate: Tailoring Reimbursement Strategies

While the IRS standard rate provides a vital compliance benchmark, it is not the only IRS-approved method for reimbursing employees. The rising costs and regional disparities have increased interest in alternative models, most notably the Fixed and Variable Rate (FAVR) program.

A Cents-Per-Mile (CPM) program, which typically uses the IRS rate, is simple to administer and works well for employees who drive infrequently. However, for high-mileage employees, it can be inaccurate because it doesn't properly account for fixed ownership costs.

In contrast, a FAVR program separates reimbursement into two components:

1. Fixed Costs: A periodic, flat payment (often monthly) that covers stable ownership expenses like insurance, registration fees, taxes, and depreciation based on the employee's location.
2. Variable Costs: A cents-per-mile payment that covers costs that vary with usage, such as fuel, tires, and routine maintenance.

This structure allows for a far more accurate and equitable reimbursement that reflects an individual employee's actual costs. A FAVR plan can be tailored to account for the specific make and model of a vehicle (within IRS limits) and the geographic territory where it is operated. For businesses, this means better cost control and the ability to provide fair compensation that is still tax-free for the employee. Administering a FAVR program is more complex than a CPM plan, often requiring specialized software, but many businesses find the accuracy and fairness it provides to be a worthwhile investment, especially for large mobile teams.

What the New Rate Means for the American Driver

Ultimately, the impact of the 2026 mileage rate is felt most directly by the millions of American workers who get behind the wheel each day as part of their job. For these individuals, the 2.5-cent increase is a welcome, if modest, relief against the rising tide of vehicle expenses. It means a larger portion of their actual costs will be covered through tax-free reimbursement.

This is particularly critical in the current tax environment. Following the Tax Cuts and Jobs Act of 2017, most employees can no longer claim a miscellaneous itemized deduction for unreimbursed business mileage. This change shifted the entire burden of reimbursement onto employers. If an employer chooses to reimburse at a rate lower than the IRS standard, or not at all, the employee has no recourse to recoup those costs on their federal tax return.

As a result, a fair and accurate reimbursement policy has become a more significant component of overall employee compensation and a key factor in attracting and retaining talent in mobile-centric roles. The new record-high rate serves as a stark reminder that driving for work is an increasingly expensive proposition, demanding thoughtful and equitable solutions from employers to ensure their workforce is not left covering business expenses out of their own pocket.