The 2026 IRS mileage rate for business use is 72.5 cents per mile, which is a 2.5-cent increase from 2025. By understanding these rates and maintaining proper documentation, Illinois taxpayers can get reliable financial planning and save thousands of dollars annually while ensuring compliance with both federal and state regulations.
What Are the 2026 IRS Mileage Rates?
The Internal Revenue Service has established the following standard mileage rates for 2026, effective January 1, 2026:
- 72.5 cents per mile for business use of vehicles (including cars, vans, pickups, and panel trucks).
- 20.5 cents per mile for medical or moving purposes (for qualified active-duty members of the Armed Forces and certain members of the intelligence community).
- 14 cents per mile for charitable organizations, unchanged as set by statute.
According to IRS Notice 2026-10, these rates apply to electric vehicles, hybrid-electric vehicles, and traditional gasoline- and diesel-powered vehicles. The 2.5-cent increase in the business rate reflects rising vehicle operating costs, including fuel, maintenance, and insurance premiums.
The business mileage rate is calculated based on an annual independent study of both fixed costs (like depreciation and insurance) and variable costs (such as fuel and maintenance). The medical and moving rates are based solely on variable costs, which explains the significant difference between the two categories.
What Factors Influence IRS Mileage Rates?
Understanding what drives rate changes helps you anticipate future adjustments and plan accordingly. An independent contractor conducts an annual study for the IRS, examining both fixed and variable costs of vehicle operation.
Gas Prices
Fuel costs have a huge impact on mileage rates. When gas prices spike, operating vehicles becomes more expensive, prompting rate increases. On the other hand, falling fuel costs can lead to lower rates. The volatility in energy markets directly correlates with year-to-year rate adjustments.
Vehicle Maintenance Costs
Rising costs for parts, labor, and tires necessitate rate increases to pay drivers adequately. Modern vehicles with advanced safety features and electronics often need specialized service, increasing the overall cost of maintenance.
Insurance Premiums
Fluctuations in auto insurance rates, especially for commercial use, influence the standard mileage rate. Lately, Illinois drivers have seen insurance premiums rise significantly, contributing to the upward pressure on reimbursement rates.
Inflation
General inflation in transportation costs drives up mileage rates across the board. When the Consumer Price Index for transportation increases, the IRS adjusts rates to reflect the real cost of vehicle operation.
Used Car Prices
The state of the used car market affects depreciation calculations built into the rate. Strong used car prices translate to higher depreciation costs, while weaker markets have the opposite effect. The depreciation component for 2026 is 35 cents per mile, up from 33 cents in 2025.
For 2026, inflation and gas prices had the most significant influence on the 2.5-cent increase to the business rate, though all factors contributed to the final determination.
Standard Mileage Rate vs. Actual Expense Method: Which Saves More?
One of the most important decisions Illinois taxpayers will make is choosing between the standard mileage rate and the actual expense method. Let’s explore each approach’s unique advantages and requirements.
Standard Mileage Rate Method
This method multiplies your business miles by the IRS rate (72.5 cents for 2026). It's straightforward and requires less extensive documentation than tracking every vehicle expense.
Benefits include:
- Simplified recordkeeping — you only need to track miles, dates, and business purposes
- Often results in larger deductions for high-mileage drivers
- Flexibility to switch to actual expenses in future years (if you own the vehicle)
- No need to track fuel receipts, maintenance costs, or insurance bills
Example: If you drive 12,000 business miles in 2026, your deduction would be $8,700 (12,000 × $0.725).
Important rule: You must choose this method in the first year you use a vehicle for business if you want the option to switch methods later. Leased vehicles must use the standard mileage rate for the entire lease period, including renewals.
Actual Expense Method
With this approach, you deduct the actual costs of operating your vehicle, prorated by your business use percentage. This includes fuel, oil, maintenance, repairs, tires, insurance, registration fees, depreciation or lease payments, and garage rent.
To calculate your deduction, track all vehicle expenses throughout the year, then multiply the total by your business use percentage. For instance, if your total vehicle costs are $10,000 and 70% of your mileage is for business, your deduction would be $7,000.
This method often benefits owners of:
- Expensive or luxury vehicles with high depreciation
- Vehicles with significant repair costs
- Newer vehicles with high insurance premiums
The actual expense method requires meticulous recordkeeping. You'll need receipts for every fill-up, oil change, and repair, plus odometer readings to calculate your business use percentage.
Making the Right Choice
We recommend comparing both methods annually to determine which provides the greater deduction. Many tax professionals recommend calculating both ways before filing. Need help deciding? Lewis CPA can analyze your specific situation and recommend the most advantageous approach based on your vehicle costs, annual mileage, and business use percentage.
Illinois-Specific Mileage Reimbursement Requirements
Illinois stands apart from most states as it has mandatory mileage reimbursement requirements for employers. Both business owners and employees must understand these laws.
Under the Illinois Wage Payment and Collection Act (820 ILCS 115/9.5), employers must reimburse employees for "all necessary expenditures or losses incurred by the employee within the employee's scope of employment and directly related to services performed for the employer."
This makes Illinois one of only three states, alongside California and Massachusetts, that legally require mileage reimbursement for employees using personal vehicles for work purposes.
Key Requirements for Illinois Employers
Illinois employers must:
- Reimburse all necessary vehicle expenses, not just fuel costs
- Cover maintenance, insurance, and depreciation costs
- Establish clear policies requiring mileage documentation within 30 days
- Ensure reimbursements don't cause employee wages to fall below minimum wage
While Illinois doesn't mandate a specific reimbursement rate, most employers align with the IRS standard rate of 72.5 cents per mile for 2026. Employers can reimburse above or below this rate, but amounts exceeding the IRS standard are taxable as income to the employee.
Penalties for Non-Compliance
If you don’t reimburse employees properly, it can result in serious consequences:
- Additional damages of 5% of the underpayment for each month the reimbursement remains unpaid
- Fines ranging from $250 to $1,000 payable to the Illinois Department of Labor
- Requirement to repay all owed amounts in full
- Potential lawsuits and labor-related complaints
These penalties are a significant increase from previous years, reflecting Illinois' commitment to protecting employee rights.
What Records Do I Need to Support My Mileage Deductions?
Proper documentation is the foundation of any successful mileage deduction claim. The IRS may request proof of your claims during an audit, and inadequate records can result in denied deductions.
Mandatory Mileage Log Components
Your mileage log must include:
- Date of each trip
- Starting and ending odometer readings
- Destination and business purpose
- Total miles driven for each trip
The IRS requires contemporaneous records, meaning you should log miles at the time of travel rather than reconstructing them later. Mobile apps and GPS-based trackers can automate this process and make compliance easier.
Supporting Documentation
Beyond your mileage log, maintain:
- Appointment schedules and meeting agendas
- Client invoices and contracts
- Receipts for tolls and parking fees (these are separately deductible)
- Vehicle registration and insurance documents
- Maintenance and repair records
For medical mileage, keep documentation from your healthcare provider verifying the necessity of trips. For charitable mileage, maintain records of your volunteer work, including dates, organizations served, and descriptions of your duties.
Record Retention Period
Keep all mileage logs, receipts, and related documentation for at least three years from the date you file your tax return. If the IRS suspects fraud, it can request up to six years of records.
Are Mileage Deductions the Same for Self-Employed Individuals and Employees?
Mileage deductions are generally available to both self-employed individuals and employees for eligible purposes such as business travel. However, there are significant differences in how these deductions are claimed.
Self-employed individuals report their mileage deductions on Schedule C (Profit or Loss from Business), which reduces adjusted gross income.
Employees cannot deduct unreimbursed business mileage on their personal tax returns. The deduction for unreimbursed employee travel expenses has been permanently disallowed under the One, Big, Beautiful Bill Act. However, certain categories retain this deduction as an adjustment to gross income:
- Armed Forces reservists
- Qualified performing artists
- Fee-basis state or local government officials
- Eligible educators (up to the dollar limit)
For employees who receive employer reimbursement, amounts paid under an accountable plan (where employees provide receipts and return excess reimbursements) aren't taxable income.
Maximize Your Tax Savings with Lewis.cpa
Claiming mileage deductions successfully requires understanding detailed rules, keeping accurate records, and staying up to date on rate changes. After serving Illinois communities for over 36 years, Lewis.cpa has helped thousands of taxpayers like you transform their business driving into legitimate tax savings while ensuring full compliance with IRS requirements and Illinois state law. Contact us today to discuss how the 2026 IRS mileage rate changes affect your specific situation and discover strategies to keep more of what you earn.
