Closing the Mileage Reimbursement Gap: 2026 Budget Strategies

Did you know that while the IRS values an eligible business mile at 70 cents in 2025, companies are actually paying anywhere from 20 cents to a full dollar for the same distance, depending on trim and usage? 

This blog breaks down the why and what this gap means for budgets. Plus, discover how organizations can keep reimbursements tax-efficient without short changing drivers.

The 2025 Mileage Landscape

As part of the IRS standard rate, the federal benchmark of 70 cents per business mile for 2025 can be seen as tax-free, when it’s under an accountable plan. This is considered an average that’s based on national fuel, insurance, depreciation, and maintenance costs collected by the IRS over the previous year.

But when real companies report their own numbers, a very different picture appears. 

Internal data from vehicle reimbursement partner Cardata show reimbursements as low as 20 cents per mile for light urban fleets and as high as one dollar per mile for rural, heavy-duty operations. 

Even the median cost of a well-run Fixed and Variable Rate (FAVR) program lands around 59 cents per mile, which is already eight cents below the IRS rate standard mileage. This is still considered fair because payments are tailored to each driver’s location and vehicle class.

Leased fleet programs often promote rates between 24 cents and 40 cents per mile, but those numbers hide the personal and commuting miles that could be slipping through and end up on the company ledger. 

The takeaway? Any organization that’s using the IRS rate as a shortcut for budgeting could easily end up paying too much, or not nearly enough.

Why Do Costs Vary?

Vehicle expenses widely vary, and their respective reimbursement also varies based on the fleet or vehicle reimbursement model that a company opts for. 

For example, a Cents per Mile program reimburses all drivers using a standard mileage rate, while a FAVR program reimburses drivers based on vehicle type, location, and other factors.

Here are a few of the key factors that can impact the per-mile reimbursement for companies:

1. Geography matters. Fuel, insurance, and maintenance can swing by as much as 20% between high-tax California and lower-cost Midwest markets.

2. Vehicle types have different expenses. Depending on the vehicle type, maintenance, fuel, depreciation, and other expenses will likely vary. For example, electric vehicles may cut annual maintenance costs, according to an analysis from the City of New York of their fleet expenses.

3. Risk profile makes a difference. Insurance is a key cost for employers and employees, which varies based on the vehicle program used. For example, within a fleet, trucks and vans cost more to insure compared to smaller sedans.

Strategies to Control Spending

Forward-thinking companies are already taking steps to keep costs aligned with genuine business-driving expenses.

Move away from company-owned vehicles

Consider adopting a compliant FAVR model. Companies that switch from fleets to a FAVR program could potentially save up to 30% on vehicle program expenses compared with flat car allowances, since payments are calibrated to local costs and mileage patterns, and also are eligible to be paid out tax-free when compliant with IRS rules.

Automate mileage capture

GPS-enabled apps, like Cardata Mobile, can help drivers reclaim about 42 hours a year of admin work that’s otherwise lost to manual logging. Plus, tech-enabled software can give organizations real-time data for audits and budget forecasts.

Actionable Next Steps

Wondering where to start? Begin by benchmarking your current cents per mile rate or your fleet costs against the ranges above. 

If your number’s higher than average, model how much a FAVR or other variable reimbursement program could save. If it’s lower, make sure drivers aren’t effectively covering company travel out of pocket.

Mileage reimbursement isn’t a back-of-the-envelope calculation anymore. With rates likely set to rise and state regulators tightening the rules, only data-driven, tax-compliant programs can keep costs predictable and employees happy. 

To kickstart a FAVR program, you can work with a mileage reimbursement partner, like Cardata. Cardata offers an end-to-end platform and managed services that simplify launching and managing FAVR programs.

Ready to make the switch? Talk to our experts today and see what’s possible.

Book a demo