Do You Have to Reimburse Mileage?

When you have to reimburse mileage (and when you don't)

Federal law usually doesn't require you to reimburse mileage. The broad duty exists in California, Illinois, Montana, New Hampshire, North Dakota, and South Dakota. A few other places have narrower or contract-based rules. If your state has no reimbursement law and you did not promise reimbursement in writing, the main federal rule is only this: work expenses cannot push wages below the federal minimum wage.

But if you have employees in a reimbursement state, small expenses add up fast. California lets employees recover three years of unreimbursed expenses, plus 10% interest from the date each expense was incurred, plus attorney's fees. A salesperson driving 18,000 business miles a year at the 2026 IRS rate (72.5¢/mile) is owed roughly $13,000 a year before interest.

How to set a policy that works in every state

• List every employee who uses their car or phone for work.
• In CA, IL, MT, NH, ND, or SD — write a reimbursement policy this week.
• Pay the IRS standard mileage rate (72.5¢/mile in 2026) as the default.
• Keep mileage documentation: date, destination, business purpose, and business miles.
• If you find old unpaid California expenses, get advice before sending cleanup payments.

How small expenses become big exposures

• A flat $200/month car allowance to a high-mileage driver — in California, that's almost always under what's owed.
• A remote worker using home internet without a stipend — in California or Illinois, that's a paid expense.
• Telling employees to use their personal phones for work without paying — California requires a slice of the bill.
• Reimbursing 50¢/mile when AAA says actual cost is 77¢ — in California, employees can recover the gap.

Start with the IRS rate, then check stricter states

The IRS mileage rate is not the law everywhere, but it is a practical default for many employers. In California, paying the IRS rate may still be challenged if the employee can show actual costs were higher, but paying nothing is the bigger mistake. Use the IRS rate as your starting point, keep a mileage log, and check California or Illinois before assuming the policy is enough.