2025 IRS Mileage Rates & Vehicle Reimbursements

Ever had a worker hand you a crumpled receipt and say, “Just give me gas money”? If you’ve been in business long enough, you know vehicle expenses can turn into a gray area fast. The good news is, the IRS lays out clear rules on how mileage reimbursement works—and in 2025, the IRS mileage rate has changed again. (For tips on building a solid reimbursement policy, see our article, “Best Practices for a Fool-Proof Expense Reimbursement Policy.”)

Whether you’re running a construction crew, a landscaping company, or a plumbing business, knowing the rules for mileage reimbursement in 2025 can save you money, keep employees happy, and keep the IRS off your back. Let’s break it down.

The 2025 Mileage Rate (and Why It Matters)

The IRS sets a cents-per-mile amount to cover gas, maintenance, insurance, and wear. In 2025, the rate is 70¢ per mile for business driving. It applies to cars, trucks, vans—gas, diesel, hybrid, and EVs. If you stick to the 2025 mileage rate, reimbursements stay fair and transparent for everyone. Pay much more, and you may create taxable income; pay less, and workers eat the cost.

Quick note on other rates: Medical and active-duty military moving miles stay 21¢, and charitable miles stay 14¢ in 2025. Those are separate from business use.

Mileage Reimbursement vs. Actual Vehicle Costs

You’ve got two legal ways to capture vehicle expenses for the business:

1. Mileage reimbursement (standard mileage method). Track business miles and multiply by 70¢. This keeps paperwork light and works excellently when employees use personal vehicles to bounce between job sites or pick up materials.

2. Actual vehicle costs. Log fuel, oil, tires, repairs, insurance, registration, and depreciation, then deduct the business share. This approach may make sense for heavily used, company-owned trucks, but requires tight records.

Pro tip from the field: Small shops usually start with the 2025 mileage rate because it’s easy to administer and easy to explain at tailgate meetings.

Special Rules That Trip People Up

• Commuting doesn’t count. Home → first job site is personal. Job site → supply house → next site → shop is business mileage.

• Employees can’t deduct unreimbursed mileage right now. Thanks to the Tax Cuts and Jobs Act (TCJA), most employees can’t claim unreimbursed travel as a miscellaneous itemized deduction for tax years through 2025. If you want crews made whole, set up company mileage reimbursement. Some limited groups (e.g., reservists, certain fee-basis officials, and some performing artists) can still deduct.

• Moving deduction is military-only. Active-duty members moving under orders can still use the moving mileage rate; civilians can’t until the suspension sunsets.

• Method rules matter. If you want the IRS standard mileage rate, choose it in the first year of the vehicle’s first business use. You’ll also want to avoid IRS pitfalls—check out 7 Common IRS Compensation Penalties to stay in the clear.

• For leased vehicles, you must use the same method (mileage or actual) for the entire lease.

Vehicle Allowance vs. Mileage Reimbursement

Many owners prefer a simple car allowance (i.e., vehicle allowance)—a flat monthly amount in place of per-mile pay. It’s easy to budget and feels straightforward. If you’re setting up an allowance or reimbursement structure, learn how to do it right with an Accountable Plan—a smart move for small-business employee reimbursements.

Pros

• Simple to administer

• Predictable cost for the business

• Workers know what to expect

Cons

• Often taxable unless you run it under an accountable plan with documentation

• Can be unfair if miles vary widely (light drivers “win,” heavy drivers “lose”)

• Doesn’t adjust when fuel or maintenance spikes

Bottom line: If driving varies by season or crew, mileage reimbursement usually aligns more closely with reality. If roles are consistent and high-mileage, consider a plan that blends fixed and variable costs. Some companies may decide to start with a flat allowance for simplicity, then switch to mileage reimbursement or a FAVR plan (see below) once they grow.

What About FAVR Plans?

A Fixed and Variable Rate (FAVR) allowance plan pays a fixed amount for base costs (insurance, registration, depreciation) and a variable cents-per-mile allowance for fuel and maintenance. For 2025, the maximum standard automobile cost you can use in a FAVR calculation is $61,200 (also the max FMV for certain cents-per-mile valuation rules).

Why shops like FAVR

• More accurate for high-mileage roles (estimators, site supers, regional service techs)

• Aligns pay with both ownership costs and miles driven

• Scales better than a flat allowance when prices swing

Trade-offs

• Needs setup, data, and regular updates

• Works best once your team size and routes are stable

Best Mileage Reimbursement Options for Blue Collar Businesses

If your employees drive only occasionally—like supply runs or short trips between jobs—the 2025 mileage rate is the cleanest, fairest, and least burdensome option. For road-warrior roles logging hundreds of miles, compare a FAVR plan with a car allowance to stay fair across fuel spikes and seasons. Whatever you choose, keep complete mileage logs and pay on a regular schedule. Your crew will trust the system, and you’ll rest easier come audit time.

Check back with JLS Accounting for 2026 updates so you’re always one step ahead.