How to Calculate a Fair Personal Vehicle Reimbursement Rate

Quick answer: A fair personal vehicle reimbursement rate covers the true cost of operating the employee’s vehicle for business: depreciation, insurance, registration, fuel, and maintenance and repair, prorated for business use. The simplest defensible option is the IRS business standard mileage rate, which is 72.5 cents per mile in 2026. If you calculate your own rate instead, base it on vehicles that represent what employees actually drive, match cost data by vehicle age and type, and use more than one rate when your employees’ vehicles differ significantly.

Should you use the IRS mileage rate or calculate your own?

You can do either. The IRS standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile, and it’s designed to cover a wide range of vehicles. That’s why it’s often higher than a rate you’d calculate for a specific group of vehicles.

Marc Canton, VP of Fleet Strategy at RTA, has served as an expert witness in reimbursement cases. On The Fleet Success Show, he described the IRS rate as “the catch-all rate. That’s the one that keeps you out of trouble.”

Calculating your own rate can make sense, especially if your organization relies heavily on personally owned vehicles (POVs). But it has to be done correctly.

What goes into a fair reimbursement rate?

According to Marc, a defensible calculation starts with a representative sample of vehicles and captures their full cost:

Then you prorate those costs to the business miles driven. As Marc put it, “you need to do that in a fair and consistent way.”

What are the most common reimbursement rate mistakes?

From Marc’s expert witness work, these are the errors that show up most often:

• Mismatched cost data. Pairing depreciation rates from a 5- to 10-year-old (or 10- to 15-year-old) vehicle with the maintenance and repair costs of a 1- to 5-year-old vehicle. Each piece looks reasonable on its own, but together they produce an artificially low rate.
• Using an “ideal” vehicle. Basing the rate on a vehicle that doesn’t represent what employees actually drive.
• Using average miles instead of actual miles. With today’s tracking tools, there’s no reason to estimate.
• Trusting a vendor’s rate without checking it. Marc has seen organizations pay outside firms whose pitch is how much money their lower rates will save. That incentive can work against you.

What’s the risk of setting the rate too low?

Litigation. In one widely reported example, Papa John’s store operators paid $3.25 million in 2021 to settle claims from delivery drivers who said their reimbursement didn’t cover their vehicle expenses. Before the settlement, the federal court in that case rejected the employers’ argument that they could reimburse a reasonable estimate of drivers’ expenses and held that drivers had to be reimbursed either for actual expenses or at the IRS rate.

Marc’s advice: the rate “doesn’t have to be the IRS [rate]… but make sure it’s fair and it’s appropriate,” because the risk of a class action and what comes with it is “just not worth it.”

This article isn’t legal or tax advice. Talk with your legal counsel and tax advisor before changing your reimbursement approach.

How many reimbursement rates do you need?

As many as it takes to fairly represent the vehicles in use. Marc’s answer to “should 25 employees have 25 different rates?” was “Maybe.” At minimum:

• Separate rates by vehicle type. Pickups and sedans cost very different amounts to operate. AAA’s 2025 data puts a small sedan at 55.87 cents per mile, 43.3% less than a pickup truck.
• Account for vehicle age. This is where reimbursement differs from how fleet managers usually think. Fleets classify by asset class with an age range inside it. For reimbursement, two vehicles in the same class, one 5 years old and one 15, will have very different costs.
• Use one rate only if vehicles truly match. If every employee happens to drive a compact sedan under five years old, one rate can work. That’s rare.

Marc noted that with modern tools, including AI, calculating individual or category rates is far easier than it used to be.

Key takeaways

• The IRS rate (72.5 cents per mile in 2026) is the simplest defensible choice.
• A custom rate must use representative vehicles and consistent cost data.
• Mismatching vehicle ages across cost categories is the most common way rates end up too low.
• Use multiple rates when vehicle types and ages vary.
• Low rates save money until they become a lawsuit.

Need help evaluating your POV program? RTA Fleet Consulting helps organizations analyze reimbursement, utilization, and right-sizing. Talk to Fleet Expert