Mileage Reimbursement Policy: What to Include

Most mileage disputes don't come from a disagreement over the rate — they come from a policy that never spelled out the details in the first place. A clear written mileage reimbursement policy heads off almost every argument before it starts, and keeps reimbursements safely inside the IRS's tax-free rules.

1. Who is eligible

State which employees or contractors are covered: all employees who use a personal vehicle for work, field staff only, or managers at a certain grade level. Also define what trips qualify — client visits, inter-office travel, job-site inspections — and explicitly exclude home-to-office commuting, since that's the single most common point of confusion in a mileage policy.

2. The reimbursement rate

Most companies reimburse at the IRS standard mileage rate to keep reimbursements tax-free — 72.5 cents per mile for the first half of 2026, rising to 76 cents per mile from July 1 after a mid-year IRS adjustment (see our full explainer on the 2026 rate change). If you pay above the applicable rate, the excess becomes taxable wages. Some employers instead use a tiered rate that falls as an individual's annual miles increase, reflecting the fact that per-mile fixed costs (insurance, depreciation) spread thinner over higher annual mileage.

3. Mileage log requirements

• Date of each trip.
• Starting address and ending address (or odometer readings).
• Business purpose of the trip.
• Total miles per trip.

4. Submission deadline

Require employees to submit mileage for the prior month within a set window — 15 days after month-end is common practice. Late submissions may be denied or delayed until the next payroll cycle, which is worth stating explicitly in the policy so there's no ambiguity when it happens.

5. Approval workflow

Specify who reviews and approves mileage reports — usually the direct manager. Large or unusual claims may warrant a second-level approval, particularly for trips that fall well outside an employee's normal travel pattern.

6. What happens if you pay above the IRS rate

Any amount above the IRS standard mileage rate is treated as taxable wages, unless you require a detailed log comparing actual vehicle costs to the standard rate under a FAVR-style programme — see our guide to FAVR mileage reimbursement if a higher, regionally-adjusted rate is genuinely warranted for your workforce. Most companies find it simpler to match the IRS rate exactly and avoid the additional paperwork a FAVR programme requires.

“A fixed and variable rate (FAVR) allowance is designed to reimburse employees for the fixed and variable costs of operating their vehicle for business purposes.”

— Internal Revenue Service, Revenue Procedure on FAVR allowances, irs.gov

Make the calculation easy for employees

A policy is only as good as how easily people can comply with it. Point your team to a mileage reimbursement calculator that applies the current rate automatically — it removes the temptation to round trip distances up or guess at the applicable rate during a mid-year change.