Mileage reimbursement helps repay employees for the business use of their personal vehicles. A reimbursement for mileage may cover fuel, maintenance, tires, insurance, registration, depreciation, and other vehicle ownership and operating costs. However, not every expense is handled the same way. Some costs are built into a per-mile rate, while others, such as tolls and parking, may need to be reimbursed separately.
For employees who drive a vehicle as part of the job, a mileage reimbursement is a key way to offset expenses. But what does a mileage reimbursement include? How do you know if your mileage rate is fair?
Quick answer: Reimbursement for mileage usually includes the business-use portion of vehicle expenses such as fuel, maintenance, tires, depreciation, insurance, registration, and license costs. The IRS business mileage rate is designed to estimate both operating costs and ownership costs, but a single cents-per-mile rate may not fully reflect every employee’s mileage, location, or vehicle expenses.
What Does Reimbursement for Mileage Cover?
A mileage reimbursement uses a cents-per-mile rate to calculate the cost of using a vehicle for work. The most common mileage rate in the United States is the standard business rate published annually by the IRS. This federal rate is commonly used as a reimbursement benchmark because payments at or below the IRS business mileage rate can generally be tax-free when accountable-plan rules are met.
Does Reimbursement for Mileage Include Gas?
Yes. Reimbursement for mileage usually includes fuel costs because gas is one of the main variable expenses tied to business driving.
For 2026, the IRS business mileage rate is 72.5 cents per mile. Many employers use this rate as a mileage reimbursement benchmark, but it is still based on average vehicle costs and may not reflect every employee’s actual driving expenses.
Gas prices can also vary by location and change throughout the year. A standard mileage rate may work well for some employees, but it may fall short for drivers in high-cost areas or for employees whose fuel costs differ significantly from national averages.
Some organizations develop their own mileage rate or use a more structured reimbursement method when they need to account for differences in fuel costs, mileage volume, and driver location.
Does Reimbursement for Mileage Cover Car Insurance?
Mileage reimbursement should cover the business portion of an employee's car insurance. You calculate the business portion by the percentage of time or mileage spent on work responsibilities. Many employers require a minimum level of insurance coverage to protect both the employee and the organization from liability for accidents.
Using a mileage rate to reimburse for insurance coverage can, however, create a mismatch. Monthly mileage is a small factor in the insurance rate, but the determining factor in the mileage reimbursement. As a result, a low-mileage driver may receive an insufficient reimbursement to cover insurance costs. That is why some organizations pay a monthly stipend that covers the known insurance premium and deduct it from the mileage rate.
Other Expenses Included in Reimbursement for Mileage
Other obvious expenses are tires, oil, and maintenance. The more a person drives, the more often that person must replace tires, change the oil, and perform other routine maintenance. A mileage rate, because it calculates payments based on how much you drive, is well-suited to reimburse these expenses.
Less obvious expenses include taxes, license, registration, and depreciation. As with insurance, these fixed expenses should be reimbursed in proportion to the time spent using the vehicle for work. But these expenses are tied to the vehicle's age, size, and value. Once again, low-mileage drivers may not drive enough to offset these costs with a mileage rate.
What Is a Fair Rate for Reimbursement for Mileage?
A fair mileage reimbursement rate is accurate or nearly accurate for all the employees in the organization who are reimbursed for mileage. This is easier said than done.
The IRS standard business rate may be fairly accurate for employees with average vehicle costs, average mileage, and average driving conditions. However, low-mileage drivers, high-mileage drivers, and employees in expensive locations may find that a single national rate does not match their actual costs.
How to Calculate Fair Reimbursement for Mileage
A standard mileage rate may not reimburse fairly unless your organization is local or regional. This allows you to determine a fair rate for workers in that locality or region. However, if there are major discrepancies in employees' mileage amounts or employees are spread across the country, calculating a fair mileage rate becomes complicated.
What Is Not Usually Included in Reimbursement for Mileage?
Reimbursement for mileage usually covers the business-use portion of owning and operating a personal vehicle. It does not usually include personal commuting, non-business miles, traffic tickets, parking fines, or personal vehicle upgrades.
Tolls and parking may be reimbursable when they are tied to a business trip, but many employers reimburse those expenses separately from the mileage rate.
How to Make Reimbursement for Mileage More Accurate
An organization should review its mileage rate periodically to make sure it reflects current gas prices as they rise and fall. It can also place employees in tiers based on how much they drive and/or how expensive their location is. The different tiers are then reimbursed at different rates. All these reimbursements remain tax-free if they do not exceed the IRS business rate.
The problem of fixed ownership costs, such as auto insurance and depreciation, still remains. When a single cents-per-mile rate does not accurately reflect employee costs, employers may need a reimbursement method that separates fixed ownership costs from variable driving costs.
A More Accurate Approach to Reimbursement for Mileage
A fixed and variable rate, or FAVR, reimburses fixed costs separately from the mileage rate. This approach improves payment accuracy. A FAVR program also uses localized costs to determine rates. This allows a business to pay different mileage rates to employees based on location.
FAVR reimbursement can be tax-free when the program meets IRS requirements and employees properly track tand report business mileage. Unlike a single cents-per-mile rate, FAVR separates fixed vehicle costs from variable operating costs, which can make reimbursement for mileage more accurate across different locations and driving patterns.
How to review your company mileage rate
Not sure whether your reimbursement for mileage is covering the right expenses? mBurse can help you review your current mileage rate, compare reimbursement options, and determine whether a standard mileage rate, tiered rate, or FAVR program would better support your mobile employees.
FAQs About Reimbursement for Mileage
What does reimbursement for mileage include?
Reimbursement for mileage usually includes fuel, maintenance, tires, depreciation, insurance, registration, license fees, and other business-use vehicle costs.
Does reimbursement for mileage include gas?
Yes. Gas is usually included in a mileage reimbursement rate, including the IRS business mileage rate.
Does reimbursement for mileage include insurance?
Mileage reimbursement can include the business-use portion of insurance, but insurance is a fixed cost and may not be fully covered for low-mileage drivers.
Are tolls and parking included in reimbursement for mileage?
Usually, tolls and parking are reimbursed separately because they are trip-specific costs rather than vehicle operating costs built into a mileage rate.
What is the IRS mileage rate for 2026?
The 2026 IRS business mileage rate is 72.5 cents per mile.
What is a fair reimbursement for mileage?
A fair reimbursement for mileage should reflect business mileage, vehicle operating costs, ownership costs, and local cost differences.