Ah, the IRS standard mileage reimbursement rate. From 1980 to 1989, the rate only fluctuated by 2 cents! (And they thought inflation was bad back then?)

Flashforward to 2026: The rate has climbed to 72 cents per mile, an almost 30% increase from 56 cents in 2021. It’s no use to pine for the good ol’ days, because they’re not coming back. 

The recent spike reflects rapidly rising vehicle ownership costs that fleet managers increasingly feel across both company-owned and employee-driven vehicles.

But using the IRS rate as a default reimbursement strategy can introduce inefficiencies and risk. In a recent conversation with Ryon Packer, chief product officer at Motus, we discussed what’s driving the increase and why the standard mileage rate often falls short for reimbursing employees using personally owned vehicles.

What’s Driving the Recent Reimbursement Rate Increase?

The IRS calculates its standard mileage rate using national averages for vehicle ownership and operating costs, as outlined in its annual revenue procedure. Fuel prices tend to draw the most attention, but they are not the primary driver behind the rising rate.

“With fuel prices being managed downward, the fact that the reimbursement rate keeps going up shows you that everything else is getting that much more expensive,” Packer said.

Among the biggest contributors:

• Maintenance and Repairs:Vehicle maintenance costs have risen by roughly 30%, driven by technician shortages and increasingly complex vehicle technology. “Nowadays, if you hit a pole, you’ve got parking sensors, proximity sensors, backup cameras, everything,” Packer said. “What used to be a ‘don’t worry about it’ repair is now thousands of dollars.”

• Vehicle Acquisition Costs: Capital costs remain more than 20% higher than pre-pandemic levels. While residual values are relatively strong, advanced driver-assistance systems (ADAS) and other embedded technology continue to push up both purchase and repair costs.

• Insurance Premiums: Higher repair severity has translated directly into higher insurance premiums. “That then cascades into insurance,” Packer noted.

• Downtime and Rentals: Longer repair cycles mean increased reliance on rental vehicles, adding to overall operating costs.

Electric vehicles add further complexity, requiring specialized repair skills and, in some states, higher tax, title, and license fees to offset declining fuel tax revenue.

Why the IRS Rate Falls Short

A common misconception is that employers are required to reimburse at the IRS rate. That is not the case.

“There’s nothing in the IRS revenue procedure that says you must pay that,” Packer said. “What it says is that’s the most you can claim tax-free.”

The rate itself is an “average of averages,” reflecting a national blend of vehicle types, insurance costs, and operating expenses. As Packer put it, “The only thing an average guarantees you is that you will never hit the average.”

For many fleet types, the mismatch is obvious. Pharmaceutical sales representatives are expected to project a certain image. Home healthcare workers drive compact vehicles, while construction or utility employees drive pickup trucks. 

They all face very different cost structures. Applying a single national average often results in over-reimbursement for some employees and under-reimbursement for others.

Compounding the issue, many of the reimbursement-related lawsuits making headlines are rooted in labor law, not tax compliance, Packer said. Using the IRS rate may offer administrative simplicity, but it does not automatically address wage-and-hour requirements.

A More Targeted Option: Fixed and Variable Rate (FAVR)

The IRS allows three methods for substantiating vehicle reimbursements: actual costs, the standard mileage rate, and the Fixed and Variable Rate (FAVR) method.

Actual cost reimbursement requires collecting and auditing receipts, which most fleets find impractical. By contrast, FAVR allows organizations to define reimbursement based on role-specific requirements while remaining IRS-compliant.

“FAVR starts with asking, ‘What does the role require?’” Packer said.

Under a FAVR program, companies can specify vehicle type and trim level and even require certain safety technologies.

"We're seeing more companies say, 'We want that vehicle, but we want the tech package,'" Packer said, referring to ADAS technologies. 

FAVR also supports stronger risk management by allowing employers to mandate higher insurance limits and a business-use rider, then reimburse employees for the added cost. These requirements help protect the organization while ensuring employees are not financially penalized.

The structure can also reduce liability exposure. According to Packer, most accidents occur after business hours — between 5 p.m. and early morning on weekdays, and over weekends — when employees are using vehicles for personal rather than work purposes.

Reimbursement, Beyond a Single Model

While FAVR offers precision, it is not the only alternative to the standard mileage rate. Some organizations use cents-per-mile reimbursement based on union-negotiated rates, which are often lower than the IRS rate because they are tailored to specific roles. 

Others rely on allowances or hybrid programs, such as reimbursing all vehicle costs except fuel, which may be covered by a company card for, say, utility workers whose vehicles idle for extended periods.

Technology platforms now support these approaches with ongoing compliance and risk management tools, including motor vehicle record monitoring, license verification, and driver training designed for business professionals rather than commercial drivers.

For fleets navigating rising vehicle costs, the takeaway is that precision matters. As the IRS mileage rate continues to climb, fleet managers may benefit from stepping back and evaluating whether an “average” solution still fits their organization’s operational, financial, and risk profile.