On December 30, the IRS has announced the standard mileage rates for 2026, and California employers should take note: the rate has increased to 72.5 cents per mile, up 2.5 cents from the 2025 rate of 70 cents. While this federal rate is optional for most employers, California law imposes stricter requirements that make understanding and implementing proper mileage reimbursement critical.
California’s Mandatory Reimbursement Requirement
Under California Labor Code Section 2802, employers must reimburse employees for all “necessary business-related expenses”, including mileage incurred while using personal vehicles for work purposes. This isn’t optional—it’s a legal mandate! Unlike federal law, which allows employers discretion in whether and how much to reimburse, California requires reimbursement of actual expenses or reasonable approximations thereof.
Why the IRS Rate Matters for California Employers
While employers can calculate actual costs, most businesses use the IRS standard mileage rate as a safe harbor, as it is “presumed” to be an adequate rate of reimbursement. The rate is designed to cover gas, maintenance, insurance, depreciation, and other vehicle-related costs. Using the current IRS rate of 72.5 cents per mile provides a defensible, reasonable approximation of actual expenses and simplifies administration.
Critically, failing to reimburse at a reasonable rate—or at all—can expose employers to significant liability, including penalties under the California Private Attorneys General Act (PAGA) and potential class action lawsuits.
Action Steps for Employers
California employers should:
- Update reimbursement policies immediately to reflect the new 72.5-cent rate effective January 1, 2026
- Communicate changes to employees who regularly drive for business purposes
- Review existing expense reports to ensure compliance
- Train managers and accounting staff on proper reimbursement procedures
Don’t let outdated reimbursement rates create unnecessary legal exposure. A simple policy update now can prevent costly litigation later.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Every employment situation is unique, and employers should consult with qualified legal counsel regarding their specific circumstances and compliance obligations. For more information about California wage and hour compliance or employment law matters, contact Koegle Law Group, APC.
For more information on the status of the IRS business reimbursement mileage rate, and other pressing employment and business matters, please visit our website at https://www.koeglelaw.com/blogs/ or reach out to our office for more information.
