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When employees use their personal vehicles for work in California, employers may be responsible for reimbursing the necessary costs associated with that business driving.
In 2026, employers have two important developments to account for.
California Labor Code Section 2802.2 now expressly addresses employee-owned personal and commercial vehicles used in the discharge of job duties.
Separately, the IRS increased its optional standard business mileage rate midway through the year.
Under California Labor Code Section 2802, employers generally must reimburse employees for necessary expenses or losses they incur as a direct consequence of performing their job duties.
When an employee is required to use a personal vehicle for work, vehicle expenses can fall under that requirement.
California does not set one mileage reimbursement rate that every private employer must use.
Employers have flexibility in how they calculate reimbursement, provided the method adequately reimburses employees for their necessary business expenses.
For employers using the IRS standard mileage rate as a benchmark, the rate is 72.5 cents per mile for business travel from January 1 through June 30, 2026, and 76 cents per mile beginning July 1.
These changes make it especially important to distinguish between California’s expense reimbursement requirements and the federal mileage rate used for tax purposes.
Here’s what California employers need to know about mileage reimbursement in 2026.
The IRS increased the business mileage rate midway through 2026 following recent increases in fuel prices.
For California employers, however, the IRS rate and the state's reimbursement requirement are two different things.
The IRS rate provides a standardized way to calculate mileage reimbursement.
California law focuses on whether employees are adequately reimbursed for the necessary expenses they incur while doing their jobs.
Does California require mileage reimbursement?
Yes. California requires employers to reimburse employees for necessary business expenses, which can include costs associated with an employee’s required use of a personal vehicle for work.
California Labor Code Section 2802 requires employers to reimburse employees for necessary expenditures or losses incurred as a direct consequence of performing their job duties.
When an employee is required to use a personal vehicle for work, the business-related costs of using that vehicle can fall under this requirement.
Beginning in 2026, California Labor Code Section 2802.2 provides additional clarity for employee-owned vehicles.
The law expressly states that Section 2802 applies when an employee uses a vehicle they own, including a personal or commercial vehicle, in the discharge of their duties.
Section 2802.2 also establishes specific reimbursement requirements for certain employees in construction trucking.
For covered construction trucking arrangements, a negotiated per-mile reimbursement cannot be lower than the applicable IRS standard mileage rate.
If reimbursement is negotiated as a flat rate instead, it cannot be lower than the employee’s actual expenditures.
Outside those specific construction trucking provisions, California does not require every private employer to use a single mileage rate.
Employers have flexibility in how they calculate vehicle reimbursement, provided the method adequately reimburses employees for their necessary business expenses.
The California Supreme Court addressed automobile reimbursement in Gattuso v. Harte-Hanks Shoppers, Inc., a 2007 case involving outside sales representatives who used their personal vehicles for work.
The court recognized methods that include actual-expense reimbursement, mileage reimbursement, and lump-sum reimbursement.
Regardless of the method used, the underlying requirement remains the same: employees must be adequately reimbursed for their actual and necessary business expenses.
What vehicle expenses can mileage reimbursement cover?
Mileage reimbursement accounts for more than fuel.
In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court discussed automobile expenses such as fuel, maintenance, repairs, depreciation, and insurance when considering an employer's reimbursement obligations.
Some vehicle expenses change as employees drive more. Fuel, routine maintenance, and wear are good examples.
Other costs, like insurance and depreciation, can also be part of the cost of making a personal vehicle available for work.
That distinction matters because employees can have very different vehicle costs even when they drive the same number of business miles.
A structured reimbursement method gives employers a consistent way to account for those expenses without asking employees to submit every individual vehicle bill each month.
Can California employers use the IRS mileage rate?
Yes. California employers can use the IRS standard mileage rate as a method for calculating mileage reimbursement, but using the IRS rate does not automatically satisfy California Labor Code Section 2802 in every situation.
In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court recognized mileage reimbursement as one permissible method for reimbursing automobile expenses.
The court also made clear that the reimbursement must ultimately cover the employee’s actual and necessary expenses associated with required business use of a personal vehicle.
That means the IRS rate can serve as a practical benchmark, but it is not a conclusive safe harbor under Section 2802.
If an employee can show that reimbursement calculated using the mileage rate did not fully cover their actual and necessary work-related vehicle expenses, the employer may be required to reimburse the difference.
For employers using the IRS standard mileage rate in 2026, the mid-year change is especially important.
Business miles driven from January 1 through June 30 are reimbursed at 72.5 cents per mile when the employer uses the IRS rate, while miles driven beginning July 1 use the 76-cent rate.
Employers should also distinguish between the IRS rate’s role in federal tax treatment and California’s separate reimbursement requirements.
The IRS rate helps determine a standardized mileage reimbursement amount for tax purposes, while California law focuses on whether employees are adequately reimbursed for necessary expenses they incur while performing their jobs.
What counts as business mileage in California?
Employers should distinguish between federal tax rules for business mileage and California’s expense-reimbursement requirements.
These rules can overlap, but they do not necessarily answer the same question.
For federal tax purposes, ordinary travel between an employee’s home and regular workplace is generally treated as commuting rather than business mileage. Examples of business mileage can include:
- Driving from an office to visit a customer or client
- Traveling between work locations during the workday
- Driving to make deliveries or service calls
- Traveling to an off-site business meeting
- Driving to pick up business supplies
Travel involving a temporary work location can receive different federal tax treatment depending on the employee’s regular work location and the circumstances of the trip.
California reimbursement obligations can involve a separate analysis. Whether travel expenses must be reimbursed under California Labor Code Section 2802 can depend on the circumstances, particularly when an employer imposes requirements connected with an employee’s vehicle or travel.
Employers should evaluate these situations based on the specific facts and applicable California law rather than assuming that federal commuting rules determine whether reimbursement is required.
Accurate records also matter when reimbursement is based on business driving.
Under IRS recordkeeping guidance, employees should maintain records showing information such as mileage, dates, destinations, and the business purpose of their trips.
Employers should also have clear reimbursement policies explaining which trips qualify under their program and how employees should document business driving.
How does Cents-Per-Mile (CPM) work in California?
A Cents-Per-Mile (CPM) program reimburses an employee by multiplying substantiated business miles by a set rate.
For example, an employer using the IRS business rate for travel in August 2026 would reimburse qualifying business mileage at 76 cents per mile.
CPM is relatively straightforward because reimbursement automatically changes with the amount an employee drives for business.
It can be particularly useful for employees who drive less frequently or whose business mileage varies.
For California employers, there is an additional consideration.
A single mileage rate may not always match an individual employee's actual and necessary vehicle expenses.
Employers should have a process for evaluating situations where the reimbursement received may be insufficient under Section 2802.
How does FAVR work in California?
A Fixed and Variable Rate (FAVR) program takes a different approach by separating projected vehicle expenses into fixed and variable costs.
Fixed payments account for costs such as depreciation or lease payments, insurance, registration and license fees, and applicable personal property taxes.
Variable payments account for costs such as fuel, oil, tires, routine maintenance, and repairs and are tied to substantiated business mileage.
FAVR can also account for geographic differences in vehicle costs.
That can be useful for employers with drivers working across different parts of California, where costs such as fuel and insurance can vary by location.
FAVR programs must satisfy specific IRS requirements to receive their intended federal tax treatment.
Employers also need to evaluate whether their reimbursement method adequately covers employees' necessary expenses under California law.
What about reimbursing actual vehicle expenses?
California employers can also reimburse employees based on actual vehicle expenses.
Under this method, employees track relevant vehicle costs and determine the portion attributable to business use.
Employers then reimburse the necessary business-related share.
This can create a close connection between reimbursement and actual costs, but it also requires more recordkeeping.
Employees may need to document vehicle expenses and distinguish business use from personal use, while employers need to review and process those records.
That administrative burden is one reason employers may choose mileage-based or other structured reimbursement methods.
Are mileage reimbursements taxable in California?
Mileage reimbursements can generally be excluded from taxable wages when they meet applicable IRS accountable plan requirements.
Under an IRS accountable plan, three basic requirements generally apply:
- The expense must have a business connection.
- The employee must adequately account for the expense within a reasonable period.
- The employee must return excess reimbursement within a reasonable period.
Using the IRS mileage rate by itself does not make a payment tax-free.
Employees still need to substantiate their business mileage, and the reimbursement arrangement needs to satisfy the applicable accountable plan requirements.
This is separate from the employer's obligations under California Section 2802.
A reimbursement method needs to be evaluated both for California expense-reimbursement compliance and for its federal tax treatment.
What is the California workers' compensation mileage rate for 2026?
California also provides mileage reimbursement for qualifying workers' compensation medical and medical-legal travel.
According to the California Division of Workers' Compensation, the mileage reimbursement rate increased to 76 cents per mile for travel on or after July 1, 2026.
The rate was 72.5 cents per mile beginning January 1, 2026.
These rates apply to qualifying workers' compensation travel and are separate from an employer's general Section 2802 obligations for employees driving personal vehicles to perform their jobs.
Mileage reimbursement vs. car allowance in California
Mileage reimbursement and car allowances can both be used as approaches to vehicle reimbursement, but they work differently.
Mileage reimbursement generally changes with an employee's substantiated business mileage. A car allowance provides a predetermined payment, such as a set amount each month.
California permits employers to use a lump-sum reimbursement approach when it adequately reimburses employees for their actual and necessary expenses.
Employers using a flat allowance should therefore monitor whether the payment remains sufficient as vehicle expenses and business driving change.
Managing California mileage reimbursement
California gives employers flexibility in how they reimburse employees who use personal vehicles for work.
The important part is building a program that adequately covers necessary expenses and can be administered consistently.
That means keeping accurate mileage records, using clear reimbursement policies, monitoring costs, and choosing a reimbursement method that fits how employees actually drive.
Cardata helps businesses manage vehicle reimbursement programs with automated mileage tracking, payments, compliance support, reporting, insurance verification, and ongoing program management.
Depending on your workforce, that can include Cents-Per-Mile (CPM), Fixed and Variable Rate (FAVR), Tax-Free Car Allowance (TFCA), or a mixed program.
Get in touch with Cardata to see how we can help you manage mileage reimbursement for your California drivers.
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