IRS Increases Mileage Tax Deduction Rates Amid Fuel Price Hike

The IRS has raised the mileage rate tax deduction available to vehicles used for business purposes for the second half of 2026 amid a rise in fuel prices.

In 2026, the standard mileage rate for the use of a car, van, pickup truck, or panel truck was set at 72.5 cents per mile, up from 2.5 cents in the previous year. This has now been raised by 3.5 cents to 76 cents, effective from July 1, the IRS said in a July 13 bulletin.

A company using a vehicle for business purposes can deduct some of its operating costs from taxable income.

This amount is calculated by multiplying the eligible miles by the standard mileage rate set by the IRS.

For instance, at 76 cents per mile, driving 10,000 miles a year would result in a $7,600 deduction.

The deduction is also available for vehicles used for medical, charity, or moving purposes for certain active-duty members of the U.S. armed forces.

For 2026, the standard mileage rate for medical and moving purposes was set at 20.5 cents. The IRS has updated this to 23.5 cents.

The IRS clarified that the decision to update mileage rates was taken due to “recent increases in the price of fuel.”

According to data from the Federal Reserve Bank of St. Louis, a gallon of regular gasoline cost $2.79 for the week ending Jan. 5, when the initial standard mileage rate came into effect for the year.

By the week ending June 29, prices had risen to $3.83 per gallon, an increase of roughly 37 percent.

The national average price of a gallon of regular gasoline was $3.98 as of July 17, according to data from the American Automobile Association.

In 20 states, prices exceeded $4 per gallon, including two states where gasoline cost more than $5 per gallon.

To use a standard mileage rate deduction, a business must meet certain conditions. For instance, they must own or lease the car and must not operate five or more vehicles at the same time, such as in a fleet operation, according to a May 6 update from the IRS.

The standard mileage rate is not the only method businesses can use to calculate deductions for operating their vehicles. 

An alternative way is to use the actual expenses incurred in running a vehicle.

However, this is a more cumbersome process that requires the business to determine the true cost of operating the car by taking into account costs such as gasoline, repairs, tires, licenses, depreciation, and registration fees.

The standard mileage is much simpler.

A business planning to use the standard mileage rate system for tax deductions “must choose to use it in the first year the car is available for use in your business,” the IRS said.

“Then, in later years, you can choose to use the standard mileage rate or actual expenses.”

Employee Reimbursement

The standard mileage rate can also be used by businesses to reimburse employees for transportation expenses.

For instance, if an employee travels 1,000 miles for business purposes, the company can reimburse them at 76 cents per mile for a total of $760.

In a July 13 statement, vehicle reimbursement and risk mitigation solutions company Motus said that the IRS’s standard mileage rate “serves as the foundation” for many reimbursement programs implemented by employers in the United States.

Motus supplies the data that is used by the IRS for the standard mileage rate calculation.

Commenting on the latest IRS revision to the mileage rate, Phong Nguyen, CEO of Motus, said in a statement that the move would help workers.

“Employees who drive for work feel the effects of changing fuel prices every time they fill up their tank,” Nguyen said.

“A mid-year rate adjustment recognizes the changing costs that organizations and employees are facing.

“Keeping reimbursement rates aligned with current operating expenses helps to ensure that employees are fairly reimbursed and that business-driving costs are accurately reflected.”