For 2025, the IRS business mileage rate has increased from 67 to 70 cents per mile. This guide will explore properly applying the IRS mileage rate in your business in 2025.
In 2025, the IRS standard mileage rates are as follows:
The standard business rate determines the tax-deductible portion of vehicle use for work purposes. Self-employed workers may deduct business mileage at that rate, and businesses may pay tax-deductible mileage reimbursements at that rate to employees.
The IRS calculates the standard business rate based on an annual study of fixed and variable vehicle operating costs, which include fuel prices, depreciation, insurance, maintenance, and repairs.
With the continued increase in a range of vehicle costs, it is no surprise that the federal mileage rate increased. Gas prices have remained relatively stable, but insurance and maintenance costs have increased significantly.
Depreciation is the largest factor among vehicle costs. The IRS reports in Notice 2024-08 that the portion of the business mileage rate treated as depreciation is 30 cents per mile for 2024. This amount is almost 45% of the total rate, which was 67 cents per mile for that year.
The federal mileage rate reasonably estimates annual vehicle costs for tax purposes. If nationwide vehicle costs increase and are expected to remain higher, then the rate usually increases. A look at mileage rates over the past five years shows this steady increase:
In 2022, it was unusual because gas prices spiked. This led the IRS to increase the federal mileage rate mid-year.
The IRS announced its 2025 rates on December 19. The business rate increased by 3 cents per mile, from 67 to 70 cents per mile. Since 2021, the rate has risen by 11 cents per mile due to increased vehicle-related costs. Though inflation in vehicle-related costs has slowed, the rate continued its pattern of increase.
Insurance rates have risen steeply (by 18.6%) over the past year, while maintenance and repair costs have risen moderately (by 3.4%). These increased costs may have influenced the IRS to adjust the rate upward from 67 cents per mile.
To qualify for business-related mileage deductions, taxpayers must use their vehicles for self-employment purposes. Employees cannot deduct mileage related to fulfilling tasks assigned by an employer. This deduction remains suspended until 2026.
Personal commuting expenses, such as driving from home to work, are not deductible. However, self-employed taxpayers who use their vehicles for business-related tasks, such as meeting clients, delivering merchandise, or traveling between job sites, may be able to deduct these miles.
To calculate mileage deductions, taxpayers multiply the miles driven for eligible purposes by the appropriate IRS mileage rate. For instance, if a taxpayer drove 1,000 miles for business purposes in 2023, they would multiply 1,000 by the 2023 IRS mileage rate of 65.5 cents to determine their deductible amount. If the same individual drove 1,000 business miles in 2024, the deductible amount would be $6,700.
Many businesses use the federal business mileage rate for employee reimbursements. Payments at the IRS business mileage rate or equivalent remain tax-free if part of an accountable plan. IRS Publication 463 lays out rules for tax-exempt plans. Other options include a fixed and variable rate plan (FAVR) or a mileage allowance at the federal rate.
Many businesses reimburse with the standard IRS rate because it is simple. Drivers keep track of mileage with an IRS-compliant log and multiply the mileage by the national rate for that year. Other businesses choose FAVR plans because these use localized rates for more accurate payments.
Downsides of paying the standard IRS rate for business reimbursements:
An accurate mileage log is essential for substantiating mileage deductions in the event of an IRS audit. A compliant log should include the date of each trip, its purpose, the starting and ending locations, and the total miles driven.
Without a detailed record, taxpayers may lose their mileage deductions. Similarly, businesses risk failing to meet the criteria for an accountable plan. Both employers and self-employed individuals should carefully follow IRS guidelines.
Several tools and apps are available to help maintain an accurate mileage log. These tools can automatically track and record mileage, making it easier to comply with IRS requirements.
mBurse offers mLog, an accurate mobile app with features such as GPS tracking, automatic trip classification, and detailed reports. Employers can use the app to provide automated reimbursements with a streamlined approval process, save time, and reduce errors.