2026 IRS Mileage Rate Rises to 76 Cents Mid-Year

This was an unusual off-cycle move, made in Announcement 2026-11, which modified the original Notice 2026-10 from December 2025. The business rate has now climbed three times in short order: 70 cents in 2025, 72.5 cents at the start of 2026, and 76 cents from July 1. As of July 2026, the 76-cent figure is believed to be an all-time high.

Mid-year adjustments are unusual. The IRS normally sets the standard mileage rate once a year in December for the full calendar year, and this is the first mid-year revision since 2022. That timing is exactly why it is easy to overlook. For Denver and Littleton business owners who reimburse employees for driving, the practical task is simple: update your reimbursement rate and remember that 2026 mileage now splits into two periods.

What Is the 2026 IRS Mileage Rate?

The 2026 IRS mileage rate for business use is 76 cents per mile for miles driven on or after July 1, 2026, and 72.5 cents per mile for miles driven January 1 through June 30, 2026. These are the optional standard mileage rates that employees, self-employed individuals, and other taxpayers use to compute the deductible cost of operating a car, van, pickup, or panel truck. The table below shows every 2026 rate.

*The moving rate applies only to active-duty members of the Armed Forces, and certain intelligence-community members, moving under orders; it is otherwise suspended for most taxpayers. The rates cover all vehicle types, including fully electric, hybrid, gasoline, and diesel automobiles. See the IRS standard mileage rates page for the official figures.

Does the Old 72.5-Cent Rate Still Apply for the First Half of 2026?

Yes. Which rate you use turns only on the trip date, split at July 1. The nuance that trips up employers is the IRS timing rule, which keys off when an expense is paid or incurred, not simply when the driving happened.

Here is how that rule works in practice. The prior rate applies to transportation expenses paid or incurred before July 1, 2026, and the revised rate applies to expenses paid or incurred on or after that date. For a mileage allowance paid to an employee, the new rate applies only when the allowance is both paid on or after July 1, 2026 and for expenses incurred on or after that date.

What this means for you: if your payroll or expense system carries a single mileage figure for the whole year, it is now wrong for one half of 2026. Set the changeover date so miles are valued at 72.5 cents through June 30 and 76 cents from July 1.

Why Did the IRS Raise the Mileage Rate Mid-Year?

The IRS attributed the mid-year increase to rising fuel costs. The business standard mileage rate is derived from an annual study of the fixed and variable costs of operating an automobile, and the medical and moving rate reflects only the variable costs from that study. When fuel, a variable cost, climbs sharply during the year, the rate set the prior December can fall out of step with real driving costs.

The announcement states the reason plainly.

“This modification results from recent increases in the price of fuel.” — Internal Revenue Service, Announcement 2026-11

The context bears that out. AAA fuel data shows regular gasoline rising from about $2.819 per gallon on January 8, 2026 to roughly $3.890 per gallon by mid-July, an increase of about 38% over the first half of the year. That is the kind of swing that prompts an off-cycle adjustment.

Do Employers Have to Pay the IRS Mileage Rate?

No federal law requires private employers to reimburse business mileage at all, let alone at the IRS rate. The standard mileage rate is a tax-deduction figure, not a mandated reimbursement amount, and the IRS itself calls it optional. Employers may reimburse at a different rate, use actual costs, or, where no state law applies, choose not to reimburse mileage as a separate line.

“Use of the standard mileage rates is optional. Taxpayers may instead choose to calculate the actual costs of using their vehicle.” — Internal Revenue Service

There are limits. Under the Fair Labor Standards Act anti-kickback rule (29 CFR 531.35), an employer must reimburse work expenses to the extent that leaving them unpaid would drop a non-exempt employee’s effective earnings below the federal minimum wage of $7.25 per hour. And three states, California (Labor Code Section 2802), Illinois, and Massachusetts, do legally require reimbursement of necessary business expenses. Colorado is not one of them, so Denver-area employers set their own mileage policy.

Can Employers Choose a Different Rate?

Yes. Employers can set any reimbursement rate, but the IRS standard rate is treated by the U.S. Department of Labor and by state agencies as a presumptively reasonable, safe-harbor proxy for an employee’s actual vehicle costs. Reimbursing at the current 76-cent rate under an accountable plan keeps the payment tax-free to the employee and fully deductible to the business, which is why most employers simply match it.

Paying below actual cost carries risk. If a low reimbursement leaves a non-exempt worker effectively earning less than $7.25 per hour after unreimbursed driving costs, the FLSA floor is triggered. Paying above the IRS rate is allowed, but the excess can become taxable wages unless the employer can substantiate higher actual costs. As WhippleWood partner Rick Whipple, CPA, notes, matching the IRS figure is usually the cleanest, most defensible choice for a closely held Colorado business.

How Do I Calculate a Mileage Reimbursement or Deduction?

Multiply the business miles driven in each period by that period’s rate, then add the two periods together. Tracking mileage is required to claim it: the IRS expects a contemporaneous log of date, miles, and business purpose for each trip. Here is a full-year example for an employee who drives 11,000 business miles in 2026, split across the July 1 changeover.

1. First half: 6,000 miles from January 1 to June 30 at 72.5 cents equals $4,350.
2. Second half: 5,000 miles from July 1 to December 31 at 76 cents equals $3,800.
3. Full-year reimbursement or deduction: $4,350 plus $3,800 equals $8,150.

The mid-year change matters even on a single trip. A 1,000-mile business month costs $725 in reimbursement in June but $760 in August, a $35 difference driven entirely by the rate increase. Over a fleet of drivers, that gap adds up quickly, which is a good reason to get the changeover right.

What This Means for Colorado Employers

For business owners in Denver, Littleton, and across Colorado, the action items are short. Update your reimbursement rate to 76 cents per mile for driving on or after July 1, 2026. Confirm your expense system splits 2026 miles at the July 1 line so the first half stays at 72.5 cents. And keep reimbursements inside an accountable plan so they stay tax-free to employees and deductible to the business.

One more figure worth noting for larger fleets: the maximum standard automobile cost for fixed-and-variable-rate (FAVR) reimbursement plans, and the fair-market-value ceiling for employer-provided vehicles, is $61,700 for 2026. That figure was set by Notice 2026-10 at the start of the year and was not changed by the mid-year rate revision.

Next Steps

Three moves keep your 2026 mileage clean. First, reset the per-mile figure in payroll and expense software to 76 cents for post-July-1 driving. Second, review any reimbursement policy that pays below the IRS rate against the FLSA minimum-wage floor. Third, confirm your accountable-plan documentation, mileage logs, and approval workflow support a mid-year rate split. Coordinating these with your business tax planning and compliance and outsourced accounting and bookkeeping workflows keeps the numbers accurate and defensible.

Frequently Asked Questions

What is the IRS mileage rate for 2026?

For business use, the 2026 IRS mileage rate is 72.5 cents per mile for trips taken January 1 through June 30, 2026, and 76 cents per mile for trips on or after July 1, 2026. The medical and moving rate is 23.5 cents per mile from July 1 (20.5 cents before), and the charitable rate is 14 cents per mile all year.

Is the IRS mileage rate mandatory for employers?

No. No federal law requires a private employer to reimburse business mileage, and the IRS rate is optional. It is a tax-deduction figure and a safe-harbor estimate of vehicle costs, not a required reimbursement. Only California, Illinois, and Massachusetts mandate expense reimbursement; Colorado does not. The FLSA anti-kickback rule can still require reimbursement when unpaid costs would cut a worker’s pay below $7.25 per hour.

Is mileage tracking required to claim the deduction?

Yes. Whether you use the standard mileage rate or actual costs, the IRS expects a contemporaneous record of each business trip showing the date, miles driven, and business purpose. Without an adequate log, a mileage deduction or a tax-free reimbursement can be disallowed on audit.

Contact Us: If you reimburse employees for driving or claim vehicle costs and want the 2026 mid-year split handled correctly, contact WhippleWood at info@whipplewood.com. Our business tax planning and client accounting services team helps Colorado business owners keep reimbursements accurate and positions they can defend.