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Minnesota employers have flexibility when deciding how to reimburse employees who use personal vehicles for work.
There is no single mileage rate that every private employer in Minnesota has to use, so companies can choose a reimbursement approach that fits their employees and driving patterns.
The IRS standard mileage rate is a common benchmark.
In 2026, employers need to account for a midyear change: the business rate is 72.5 cents per mile from January 1 through June 30 and 76 cents per mile from July 1 through December 31.
Minnesota also has separate mileage reimbursement rules for state employees and for certain travel associated with workers’ compensation claims.
Here’s what employers and drivers should know about Minnesota mileage reimbursement in 2026.
What Is the Minnesota Mileage Reimbursement Rate for 2026?
Minnesota does not have one universal mileage reimbursement rate for private employers. For businesses looking for a benchmark, the federal IRS mileage rate is a common starting point.
For business driving in 2026, the IRS rates are:
- January 1 through June 30: 72.5 cents per mile
- July 1 through December 31: 76 cents per mile
The IRS initially established the 72.5-cent rate for 2026 and then made a midyear adjustment following increases in fuel prices.
The IRS standard mileage rate confirms the 76-cent rate for business mileage from July 1 through December 31, 2026.
The standard mileage rate is optional. Employers can use it as a benchmark for a Cents-Per-Mile (CPM) program or choose another reimbursement method that better reflects how their employees drive.
For example, employers may consider Fixed and Variable Rate (FAVR), Tax-Free Car Allowance (TFCA), or a mixed reimbursement program.
Do Employers Have to Reimburse Mileage in Minnesota?
Minnesota does not set a general cents-per-mile reimbursement rate that every private employer must pay.
Minnesota law does address certain work-related travel expenses.
Minnesota Statutes § 177.24 includes travel expenses incurred in the course of employment within its rules governing certain direct and indirect wage deductions, while excluding ordinary travel between an employee’s residence and place of employment.
Employers should review the statute and applicable employment agreements when developing their reimbursement policies.
An employer’s own reimbursement policy, employment agreement, or collective bargaining agreement can create additional obligations.
For employers, the practical takeaway is to have a clear mileage reimbursement policy explaining which trips qualify, how employees document business mileage, which reimbursement method applies, and how reimbursement is calculated.
Is Mileage Reimbursement Tax-Free in Minnesota?
Mileage reimbursement can generally be excluded from federal taxable wages when it is paid under an arrangement that meets IRS accountable-plan requirements.
According to IRS Publication 463, an accountable plan generally requires expenses to have a business connection, employees to adequately account for those expenses within a reasonable period, and employees to return excess reimbursement within a reasonable period.
Documentation matters here. Employees should maintain records showing information such as mileage, dates, destinations, and the business purpose of their trips.
Paying exactly the IRS mileage rate is not what makes a reimbursement tax-free by itself. The reimbursement arrangement and substantiation requirements matter too.
Under an accountable plan, a properly substantiated mileage allowance at or below the applicable federal rate can generally be excluded from an employee’s taxable wages when the applicable IRS requirements are satisfied.
For a mileage allowance above the federal rate, the excess is generally treated as taxable wages. FAVR follows separate IRS requirements.
A properly structured FAVR program reimburses the real, business-required fixed and variable costs of owning and operating a personal vehicle for work rather than applying the same national cents-per-mile rate to every driver.
What Counts as Business Mileage in Minnesota?
Business mileage generally involves driving for a legitimate work purpose.
Ordinary travel between an employee’s home and regular workplace is generally treated as commuting for federal tax purposes.
For example, imagine an employee drives from home to their regular Minneapolis office and later travels from the office to visit a customer in Saint Paul.
The first trip is generally commuting. The drive from the office to the customer is generally business transportation.
Other examples can include driving between job sites, making customer or service calls, or traveling from one business location to another during the workday.
The IRS has additional rules for situations such as temporary work locations, multiple workplaces, and qualifying home offices.
Maintaining accurate mileage records helps employers and employees identify business trips and substantiate reimbursement.
What Is the Minnesota State Employee Mileage Rate for 2026?
Minnesota state employees follow reimbursement rules established through state bargaining agreements and compensation plans.
Minnesota Management and Budget states that state bargaining agreements and compensation plans base mileage reimbursement on the IRS standard mileage rate in effect at the time of travel.
Beginning July 1, 2026, Minnesota lists two primary rates for employees using personal vehicles:
- 76 cents per mile when the employee uses a personal vehicle because a state vehicle is unavailable.
- 69 cents per mile when a state vehicle is offered but the employee declines it and chooses to use a personal vehicle.
For January 1 through June 30, 2026, the corresponding rates were:
- 72.5 cents per mile when a state vehicle was unavailable.
- 65.5 cents per mile when an available state vehicle was declined.
Minnesota Management and Budget notes that separate bargaining agreements and compensation plans should be consulted for specially equipped vehicles, motorcycles, and personal aircraft.
These rates apply to covered state employees. They do not establish the reimbursement rate that private Minnesota employers must use.
How Does Minnesota Workers’ Compensation Handle Mileage?
Mileage can also come into play when an employee is receiving medical treatment for a work-related injury.
The Minnesota Department of Labor and Industry states that employers are responsible for reasonable expenses incurred in providing necessary treatment for a compensable work injury, including travel costs.
Travel expenses can also apply when an employee is required to attend an independent medical examination.
Minnesota Statutes § 176.155 requires the employer to pay reasonable travel expenses associated with that examination, including mileage, parking, and, when necessary, lodging and meals.
These reimbursements are part of Minnesota’s workers’ compensation system and should be treated separately from an employer’s regular business mileage reimbursement program.
What Is the Average Car Allowance in Minnesota?
There is no official statewide average car allowance that Minnesota private employers are expected to use.
A traditional car allowance typically provides employees with a fixed monthly payment for using a personal vehicle for work.
Actual vehicle costs can vary between employees based on mileage, fuel prices, insurance, vehicle requirements, maintenance costs, and where the employee lives and drives.
Tax treatment also depends on how the allowance is structured. A fixed monthly allowance does not automatically qualify for tax-free treatment simply because an employee uses a vehicle for work.
Employers looking for another approach can consider reimbursement programs designed around substantiated business driving and vehicle costs.
Which Mileage Reimbursement Program Works for Minnesota Employers?
Different employee populations can call for different reimbursement approaches.
Cents-Per-Mile (CPM) uses a set rate for each substantiated business mile to reimburse the real, business-required costs associated with owning and operating a personal vehicle for work. It can be a practical option for occasional and lower-mileage drivers.
Fixed and Variable Rate (FAVR) reimburses the real, business-required fixed and variable costs of owning and operating a personal vehicle for work.
Fixed costs can include expenses such as insurance, depreciation, license, and registration, while variable costs can include fuel, maintenance, oil, and tires.
Because FAVR can incorporate localized cost data, reimbursement can better reflect differences between drivers and locations.
Tax-Free Car Allowance (TFCA) can combine fixed and mileage-based components to reimburse the real, business-required costs employees incur when using personal vehicles for work. When properly structured and substantiated, reimbursements can receive favorable tax treatment under applicable IRS rules.
Employers can also use a mixed approach. A business might use FAVR for employees who drive regularly and CPM for employees who only occasionally need their personal vehicles for work.
Managing Mileage Reimbursement in Minnesota
A good Minnesota mileage reimbursement policy starts with understanding how employees actually drive.
Mileage volume, employee locations, vehicle requirements, and administrative needs can all affect which reimbursement method makes sense.
Reliable mileage tracking is also important.
It gives employees a simpler way to document business driving while giving Finance, HR, and Operations teams better visibility into reimbursement costs and program activity.
Cardata helps businesses design and manage vehicle reimbursement programs for employees who use personal vehicles for work.
Our fully managed programs bring together mileage capture, reimbursement calculations, payments, reporting, and compliance support, helping businesses manage reimbursement without adding unnecessary administrative work.
Talk to Cardata to explore a mileage reimbursement program built around your drivers, business needs, and budget.
Talk to Cardata
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