Article  |  July 20, 2026  |  SJHL

The IRS has issued a mid-year adjustment to its standard mileage rates and for employers.  This rate change goes beyond simply updating a number in a spreadsheet. Getting the details wrong could mean over- or under-reimbursing employees, violating accountable plan rules, and creating unexpected tax exposure for both your business and your workers.

What Changed

Effective July 1, 2026, the IRS increased the standard business mileage rate from 72.5 cents per mile to 76 cents per mile. The rates for medical and moving purposes also increased from 20.5 cents to 23.5 cents per mile. The result is two separate rate schedules within the same calendar year, one applying to mileage incurred between January 1 and June 30, and another applying to mileage incurred from July 1 through December 31.

The increase was driven by a sharp rise in fuel costs.

Why This Creates a Payroll and Reimbursement Challenge

For employers running accountable plans, the timing rules are specific and must be followed carefully. The new 76-cent standard business mileage rate applies only when both of the following conditions are met: the transportation expense was incurred by the employee on or after July 1, 2026, and the reimbursement was paid to the employee on or after July 1, 2026. If either condition is not met for example, if a June expense is reimbursed in July, the original 72.5-cent rate still applies.

This split-rate structure means your payroll and expense reimbursement workflows need to account for when each expense was incurred, not just the total miles driven. Employers who process reimbursements in batches or on a monthly cycle are especially at risk of applying the wrong rate if expense dates are not carefully tracked.

Accountable Plans: The Rules Still Apply

To ensure mileage reimbursements remain tax-free to employees and deductible for your business, your reimbursement program must qualify as an accountable plan under IRS rules. That means three requirements must be satisfied:

• The expense must have a clear business purpose and be incurred while the employee is performing job duties.
• The employee must provide adequate documentation including dates, destinations, mileage, and business purpose within a reasonable period of time.
• Any reimbursement that exceeds the actual expense must be returned to the employer within a reasonable period of time.

If your plan does not meet these standards, reimbursements may be treated as taxable wages triggering payroll tax obligations for your business and unexpected income for your employees. The mid-year rate change is a timely reminder to audit your current policies and confirm they still meet IRS requirements.

Why Employer Reimbursements Matter More Than Ever

The stakes for getting this right have risen. Under changes made permanent by the One Big Beautiful Bill Act, most employees can no longer deduct unreimbursed business travel expenses on their personal tax returns. That means if your business does not reimburse mileage, your employees are simply absorbing that cost with no tax relief available to them. A well-structured accountable plan is not just a compliance tool, it is a meaningful employee benefit that helps you attract and retain talent in a competitive market.

Action Steps for Employers

Now is the right time to take a closer look at how your business handles mileage reimbursement. Consider the following:

• Update your businss mileage reimbursement rate to 76 cents per mile for all qualifying expenses incurred on or after July 1, 2026.
• Review your expense submission process to ensure employees are capturing trip dates, not just mileage totals.
• Audit your accountable plan documentation to confirm it meets current IRS standards for business purpose, substantiation, and return of excess amounts.
• Coordinate with your payroll provider to ensure the correct rate is being applied based on the date the expense was incurred — not the date of reimbursement.

We Can Help

A mid-year rate adjustment adds a layer of complexity that is easy to overlook in the day-to-day flow of running a business. At SJHL, we work with business owners year-round. If you have questions about how the new mileage rates affect your business, contact our office today.