IRS Updates Mileage Reimbursement Rate: What California Employers Should Know
California Labor Code section 2802 requires California employers to reimburse employees for all necessary expenses incurred in the course of their employment, including the business use of their personal vehicles. This obligation is designed to ensure employees are not bearing the costs associated with performing their jobs.
The IRS standard mileage rate is widely used by employers as a benchmark for vehicle reimbursement because it is intended to approximate the actual costs of operating a vehicle for business purposes. Specifically, the IRS rate factors in not only the cost of gasoline, but also depreciation, insurance, maintenance, repairs, and other fixed and variable expenses associated with vehicle ownership and use.
The IRS recently announced an increase in the standard mileage rate for business-related automobile expenses to 76 cents per mile, effective as of July 1. While employers are not required to use the IRS rate, it is generally recognized as a reasonable and defensible method for calculating vehicle-related expenses. Using the IRS rate can help employers demonstrate compliance with California’s reimbursement requirements and reduce the risk of wage-and-hour claims related to under-reimbursement.
Employers should review their current mileage reimbursement policies to ensure they adequately cover employees’ actual costs for business travel. If the IRS rate is used, it is important to apply the updated rate to all qualifying business mileage incurred on or after July 1, 2026. A proactive review and adjustment of reimbursement practices in light of the new IRS rate will help employers meet their legal obligations and protect against potential liability.
Sue M. Bendavid Chairs the Employment Defense Practice Group at Lewitt Hackman.