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.
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.
According to Marc, a defensible calculation starts with a representative sample of vehicles and captures their full cost:
|
Cost component |
What to capture |
|---|---|
|
Depreciation |
Loss in value based on vehicle age, type, and mileage |
|
Insurance |
Including the higher premium for business use |
|
Registration |
Annual fees and taxes |
|
Fuel |
Actual fuel economy for the vehicle types in use |
|
Maintenance and repair |
M&R costs for vehicles of the same age and type |
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.”
From Marc’s expert witness work, these are the errors that show up most often:
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.
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:
Marc noted that with modern tools, including AI, calculating individual or category rates is far easier than it used to be.
Need help evaluating your POV program? RTA Fleet Consulting helps organizations analyze reimbursement, utilization, and right-sizing. Talk to Fleet Expert