The IRS made a very rare mid-year move that California employers can’t afford to ignore. Effective July 1, 2026, the optional standard mileage reimbursement rate for business use jumped to 76 cents per mile — up from 72.5 cents earlier in the year (eff. January 1, 2026), itself an increase from 70 cents in 2025. Rising fuel and vehicle operating costs drove the change.
Why This Matters for Your Business
California business owners are required — not merely encouraged — to reimburse employees for all necessary business-related expenses, including mileage for driving done on the company’s behalf. This obligation is laid out in California Labor Code §2802, which requires employers to “indemnify” employees for all necessary expenditures incurred in direct consequence of the discharge of their duties.
Many employers use the IRS standard mileage rate as a benchmark for reasonableness because it’s simple and defensible, and creates a legal presumption in favor of the business — but it is not the legal floor. Section 2802 requires reimbursement of the employee’s actual, necessary expenses. If your reimbursement rate is stale, or your policy hasn’t been updated since the last IRS adjustment, you may already be under-reimbursing employees for miles driven since July 1.
The Risk: One Employee Can Speak for Everyone
Recently, under-reimbursement claims have become a favorite target for PAGA (Private Attorneys General Act) actions and wage-and-hour class actions — and for good reason: a uniform mileage policy applied company-wide is exactly the kind of “common practice” that makes claims easy to certify or bring on a representative basis.
It only takes one disgruntled employee — someone who was recently terminated, passed over, or simply frustrated — to file a PAGA notice or class complaint alleging the company’s mileage reimbursement fell short. Because PAGA claims are brought on behalf of the State of California and all other “aggrieved employees,” that single plaintiff can pursue penalties for every mile driven by every current and former employee under the same policy — not just their own damages. Exposure can multiply quickly across pay periods, employees, and locations.
What Business Owners Should Do Now
1. Immediately update your reimbursement rate to reflect the 76 cents/mile rate for travel occurring on or after July 1, 2026.
2. Review your written expense reimbursement policy and procedures to confirm it references a current rate, not a stale one.
3. Audit recent reimbursements to confirm mileage submitted after July 1 was paid at the updated rate. While you’re at it – check to confirm you updated the mileage reimbursement rate earlier this year to reflect that correct rate, too!
4. Document your reimbursement method, whether it’s the IRS rate, a flat vehicle stipend, or actual-expense tracking — consistency and documentation are always your best defense.
A quick policy check now, including paying back prior reimbursements that fall short of the standard, is far cheaper than defending a PAGA action later. If you’d like help reviewing or updating your reimbursement policy, Koegle Law Group, APC would be glad to assist.
The information contained herein may not reflect the most current legal developments and is not guaranteed to be correct, complete, or up to date. Nothing in this article should be construed as creating an attorney-client relationship. Employers should consult with qualified employment counsel regarding their specific circumstances before taking action based on any information contained in this article.
About Koegle Law Group, APC
Koegle Law Group, APC is a boutique employment law and business litigation firm representing employers and businesses in California and Texas. The firm advises clients on a wide range of employment matters including wage and hour compliance, PAGA defense, harassment and discrimination, leave management, and HR counseling. For a confidential consultation, contact Koegle Law Group at https://koeglelaw.com or (661) 512-6770.
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