Mileage & Expense Reimbursement Laws by State (2026)

A California outside-sales rep drives 18,000 business miles a year in her own car. The IRS standard mileage rate for 2026 is 72.5¢. Her employer pays nothing. Three years later, Labor Code §2802 catches up: the unreimbursed mileage adds up to roughly $39,000 in principal, plus 10% interest from the date each expense was incurred under §2802(b), plus attorney's fees under §2802(c). One employee. One vehicle. And §2802 is one of six state statutes that produce this kind of recovery without requiring a contract, a handbook, or any pre-existing agreement to reimburse.

The federal floor doesn't help. FLSA only protects employees from expenses that drop their wages below $7.25/hr. Above that, federal law says nothing about mileage, internet, cell phones, or any other work expense — and as of January 1, 2026, W-2 employees can no longer deduct unreimbursed business expenses on their federal returns at all (see Recent Changes below for the §67(g) detail). State law is the entire game. Whatever the employer doesn't pay, the employee now absorbs with no tax offset.

Try the mileage reimbursement calculator with §2802 actual-cost gap →

What this guide covers

• Six states with broad §2802-style indemnity: California, Illinois, Montana, New Hampshire, North Dakota, South Dakota
• Narrower duties: Massachusetts (transportation only), Iowa (authorized expenses, 30-day rule), Minnesota (uniforms/equipment), DC (tools/uniforms)
• Contract-conditional rules: New York §198-c, Pennsylvania fringe-benefit rule
• Local ordinances with bite: Seattle SMC 14.20 (treble damages for willful violations)
• Federal floor everywhere else: 29 CFR §531.35 kickback rule at $7.25/hr
• The 2026 IRS rate: 72.5¢ business / 20.5¢ medical and moving (military only) / 14¢ charitable
• Cell phone, home internet, and home-office liability under Cochran and Thai v. IBM

The 5 Most Expensive Reimbursement Mistakes

1. Treating the IRS rate as the duty. The IRS standard mileage rate is a safe-harbor tax treatment, not a federal reimbursement requirement. There is no federal duty to reimburse mileage at any rate. California, Illinois, Montana, New Hampshire, North Dakota, and South Dakota impose the duty; everywhere else, the obligation arises only from contract or the federal kickback floor at minimum wage. Employers that read 72.5¢ as "the law" overpay in non-reimbursement states and underpay in §2802 states (because §2802 requires actual expenses, which often exceed IRS — AAA's 2025 weighted average for vehicle ownership came to about 77¢/mile).

2. Underestimating §2802(b) interest. Awards under California Labor Code §2802 carry 10%/year interest from the date each expense was incurred, not from the date of judgment. A three-year backpay period on $40,000 of unreimbursed expenses compounds to roughly $54,000 before the employer even reaches the attorney's-fees provision in §2802(c). UCL repackaging under Bus. & Prof. Code §17208 extends the lookback to four years. The naked unreimbursed-cost figure is the floor, not the ceiling.

3. Ignoring Cochran on family cell-phone plans. Cochran v. Schwan's Home Service, 228 Cal.App.4th 1137 (Cal. Ct. App. 2014), held that California employers must pay "some reasonable percentage" of an employee's monthly cell phone bill whenever the personal phone is required for work — regardless of whether the employee personally pays the bill, has an unlimited plan, or incurs any incremental cost. Family plans, parent-paid plans, unlimited-data plans: all trigger the duty. The reimbursement is for the use of the phone, not the marginal cost.

4. Assuming the remote-work expense defense survived Thai. Thai v. International Business Machines Corp., 93 Cal.App.5th 364 (Cal. Ct. App. 2023), rejected IBM's argument that the government's COVID stay-home order — not IBM — caused the home-office expenses. The Court of Appeal held that §2802 turns on whether the expenses were "actually due to performance of the employee's duties," not on whether the employer was the proximate cause. The "we didn't tell you to work from home, the governor did" theory is closed. Every California employer that sent workers home in 2020–2021 without an expense stipend now sits on an open §2802 exposure.

5. Running a "non-accountable" reimbursement plan and reporting it as expense, not wages. Under 26 CFR §1.62-2, a reimbursement plan must have a business connection, employee substantiation within a reasonable time (~60 days), and return of any excess within ~120 days. Miss any prong and the IRS treats every dollar as W-2 wages — subject to FICA, FUTA, federal income tax withholding, and employer payroll taxes — even though the underlying expense was real. The employee gets no offsetting deduction (§67(g) permanently disallows it). Practical effect: a sloppy reimbursement plan converts the expense into a 30%+ tax-cost overhang on top of the unreimbursed dollars.

Federal Baseline — The Kickback Rule

There is no federal mileage rate, no federal cell-phone rule, no federal home-office rule. The FLSA contains no positive expense-reimbursement requirement. The only federal protection is the "free and clear" rule.

29 CFR §531.35 — The "free and clear" requirement

Wages under the FLSA must be paid "finally and unconditionally" or "free and clear." The minimum-wage and overtime requirements are violated whenever the employee "kicks back" — directly or indirectly, in cash or in kind — any part of the wage to the employer or for the employer's benefit, if doing so cuts into the federal minimum wage or overtime premium.

The DOL's own example: "if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer's particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid under the Act." See 29 CFR §531.35.

The practical reach is narrow. At $7.25/hr federal minimum, an employee earning $15/hr can absorb roughly $7.75/hr of unreimbursed work expense before the kickback rule triggers. For salaried or higher-paid workers, §531.35 imposes no mileage or expense duty at all.

29 CFR §531.32 — Facilities vs employer benefit

The companion regulation. Items "primarily for the benefit or convenience of the employer" are NOT facilities and cannot be charged against the minimum wage. The enumerated employer-benefit items include safety equipment, miners' lamps, transportation that is "an incident of and necessary to the employment," and uniform rental "where the nature of the business requires the employee to wear a uniform." Board, lodging, and meals at company restaurants CAN be charged against wages as "facilities" under FLSA §3(m). See 29 CFR §531.32.

§531.32 paired with §531.35 is the full federal framework. Everything that follows is state law.

The IRS Standard Mileage Rate — What It Actually Is

The IRS standard mileage rate is not a federal reimbursement duty. It is a safe-harbor tax treatment: a published optional rate that employees, self-employed taxpayers, and employer reimbursement programs can use to substantiate vehicle expenses without tracking actual fuel, depreciation, insurance, and maintenance costs.

The rate matters for two reasons:

1. Reimbursement is tax-free at or below the rate. Under 26 CFR §1.62-2's accountable-plan rules, employer reimbursement at or below the IRS rate (with proper substantiation) is excluded from W-2 wages and not subject to payroll tax. Pay above the rate and the excess is W-2 wages. The employee cannot deduct any unreimbursed shortfall under federal tax law — the OBBBA (2025) made the §67(g) suspension of miscellaneous itemized deductions permanent.
2. It is the de-facto private-sector benchmark. Employers without state-law obligations almost always peg reimbursement to the IRS rate because it is simple, defensible, and tax-clean.

2026 rate (Notice 2026-10)

The IRS issued Notice 2026-10 on December 29, 2025 (IR-2025-128), setting the optional standard mileage rates for the 2026 tax year:

Of the 72.5¢ business rate, 35¢ represents depreciation (used in FAVR-plan calculations) — up 2¢ from 2025. The maximum standard automobile cost under a FAVR plan is $61,700 for 2026 (up $500 from 2025).

Three-year rate history

Charitable is stuck at 14¢ because the rate is fixed by statute (26 USC §170(i)) and has not changed since 1998. The IRS cannot adjust it administratively — Congress would have to amend the section. Business and medical rates are adjusted annually based on fixed-and-variable-cost analysis.

The Tax Cuts and Jobs Act narrowed the moving rate's eligible population to active-duty military members; the One Big Beautiful Bill Act (2025) added intelligence-community personnel under §70113(b). For every other taxpayer the moving-expense deduction is unavailable.

Mileage log substantiation — 26 CFR §1.274-5

To claim the IRS rate (either for a tax deduction or for an accountable-plan reimbursement that escapes W-2 reporting), business use must be substantiated under §1.274-5. Each trip needs:

1. Amount — business miles for the trip
2. Time and place — date and destination
3. Business purpose — what the trip was for

A "contemporaneous" log (made at or near the time of the trip) has "a high degree of credibility." Reconstructed logs are permitted but receive less weight; logs reconstructed well after the fact require "sufficient evidence" with "high probative value" to get the same treatment. An employer reimbursing at the IRS rate inherits this documentation expectation — the reimbursement is only as tax-clean as the log behind it.

California Labor Code §2802 — The Load-Bearing State Statute

California is the most expensive jurisdiction for expense reimbursement in the country, by a wide margin. The statute is broad, the case law is plaintiff-friendly, and the recoverable damages include attorney's fees and interest from the date of the expense.

§2802(a) — verbatim

"An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful."

Source: California Labor Code §2802.

§2802(b) — 10% interest from the date of the expense

Awards under §2802 carry "interest at the same rate as judgments in civil actions" — currently 10% per year under California Code of Civil Procedure §685.010 — accruing from the date the expense was incurred, not from the date of judgment. Multi-year backpay periods compound this materially. A three-year unreimbursed-mileage claim adds roughly 33% to the principal before any liability for fees attaches.

§2802(c) — attorney's fees are "necessary expenditures"

"For purposes of this section, the term 'necessary expenditures or losses' shall include all reasonable costs, including, but not limited to, attorney's fees incurred by the employee enforcing the rights granted by this section."

This is one-way fee-shifting in the employee's favor — the plaintiff's attorney recovers fees on a successful §2802 claim, but a prevailing employer does not. Combined with §2802(b) interest, §2802(c) is what turns a $40,000 mileage shortfall into a $150,000 lawsuit.

Statutes of limitations

• 3 years under CCP §338(a) for the §2802 statutory claim itself
• 4 years under California Business & Professions Code §17208 when the §2802 violation is repackaged as an unfair-business-practice (UCL) claim — a standard plaintiffs' strategy to extend the lookback

What "necessary expenditures" has been held to cover

California courts have construed §2802 expansively. The non-exhaustive list:

• Mileage, fuel, depreciation for personal vehicle used in work (the original Gattuso context)
• A "reasonable percentage" of the employee's personal cell phone bill when used for work (Cochran)
• Home internet for remote work (Thai v. IBM; Williams v. Amazon)
• Home-office equipment — chairs, monitors, headsets, computer accessories (Thai)
• Required uniforms — purchase and care
• Tools required for the job
• Mandatory training travel
• Business meals during required travel

Things California employers consistently miss

• The IRS rate is the safe-harbor, not the duty. Gattuso v. Harte-Hanks confirmed that §2802 requires actual expense indemnity; the IRS rate is a permissible proxy but not a defense if actual costs exceed it. The 2025 AAA weighted average for vehicle ownership came in around 77¢/mile — already above the 72.5¢ IRS rate. An employee can challenge the IRS-rate floor in litigation and the burden shifts to the employer to show adequacy.
• The lump-sum option is theoretically allowed but operationally fragile. Gattuso permits an employer to fold expense reimbursement into salary/commission, but only if the employer (i) clearly identifies which portion is the expense reimbursement, and (ii) can prove the amount is sufficient to cover actual expenses. The employee can challenge adequacy at any time. Almost no California employer uses this method.
• "Required" cell-phone use is broader than written policy. Cochran holds that an employer that calls or texts an employee on a personal number, sends work alerts via a personal phone app, or expects responsiveness without issuing a company device has "required" the cell phone use — even without a written policy mandating it.
• §2802 follows the employee's work location, not the employer's HQ. A Texas-based employer with one California-remote employee owes that employee §2802 reimbursement. A California-based employer with a Texas-remote employee owes nothing under state law (only the federal kickback floor).
• EPLI policies typically exclude §2802 claims. Most employment-practices liability insurance carve out wage-and-hour claims, including expense reimbursement. The exposure comes out of operating budget, not insurance.

Key California Cases

The four cases above carry most of the operative §2802 doctrine. The litigation pipeline post-2023 — class actions filed by California remote employees seeking unreimbursed home-internet, cell-phone, and equipment costs — is built on Thai's rejection of the "the government caused this expense, not us" defense and on Cochran's "use, not cost" trigger. Treat the post-2020 work-from-home period as an open §2802 exposure unless the employer paid an expense stipend that survived an adequacy challenge.

State-by-State Reimbursement Rules

Six states have a broad §2802-style indemnification duty: California, Illinois, Montana, New Hampshire, North Dakota, South Dakota. Massachusetts, Iowa, Minnesota, and DC have narrower obligations tied to specific categories. New York and Pennsylvania enforce reimbursement only where there is an underlying agreement. Seattle's wage-theft ordinance reaches expense reimbursement through "compensation owed." Every other state — about 38 of them — has only the federal kickback floor: the duty kicks in only when unreimbursed expenses cut wages below $7.25/hr.

Illinois — 820 ILCS 115/9.5

The most important non-California reimbursement statute, and the template for newer ordinances. Enacted August 26, 2018; effective January 1, 2019. Amends the Illinois Wage Payment and Collection Act to require employers to reimburse "all necessary expenditures or losses incurred by the employee within the employee's scope of employment and directly related to services performed for the employer."

Key features:

• "Necessary expenditures" = "all reasonable expenditures or losses required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer."
• Employer must have authorized or required the expenditure — knowledge of the expense is enough; formal pre-authorization is not.
• 30-day submission window for expense claims, unless the employer's written policy provides a longer period.
• Written statement permitted when supporting documentation is lost or doesn't exist.
• Reasonable caps allowed. The employer can limit reimbursement by written expense policy (for example, a cap on cell-phone reimbursement) as long as the cap is reasonable — but cannot eliminate reimbursement entirely for necessary expenses.
• Private right of action through the IWPCA, with attorney's fees and costs to the prevailing employee under 820 ILCS 115/14.
• Carve-out: employer not responsible for losses from employee negligence, normal wear, or theft (unless employer-negligence-caused).

Litigation under §9.5 ramped up through 2024–2025, much of it targeting remote-work expenses (home internet, cell phone, equipment) for Illinois employees of out-of-state employers. The duty follows the employee's work location, not the employer's HQ.

Massachusetts — 454 CMR 27.04(4) + Wage Act

Massachusetts has no §2802-style general indemnification statute. The Department of Labor Standards' minimum-wage regulation 454 CMR 27.04(4) requires employers to reimburse employees for transportation expenses in two specific situations: (b) "an employee who regularly works at a fixed location is required to report to a location other than his or her regular work site," and (d) "an employee is required or directed to travel from one place to another after the beginning of or before the close of the work day."

Enforcement runs through the Wage Act, MGL c.149 §148, which provides treble damages plus attorney's fees for unpaid wages — making 454 CMR 27.04(4) one of the most painful narrow-scope reimbursement rules to violate. But its scope is transportation only: home internet, cell phone, and home-office equipment fall outside.

Montana — MCA §39-2-701

"An employer shall indemnify an employee, except as prescribed in subsection (2), for all that the employee necessarily expends or loses in direct consequence of the discharge of duties as an employee or of the employee's obedience to the directions of the employer, even though unlawful, unless the employee at the time of obeying the directions believed them to be unlawful."

Textually identical structure to California §2802(a). Carries an exception for ordinary business-risk losses. Roots trace to the 1895 Montana Civil Code, an artifact of Field Code adoption — same parentage as California §2802 and the Dakota statutes. Source: MCA §39-2-701.

North Dakota — NDCC §34-02-01

Same Field Code lineage. "An employer must indemnify an employee, except as prescribed in section 34-02-02, for all that the employee necessarily expends or loses in direct consequence of the discharge of the employee's duties." Source: NDCC §34-02-01.

South Dakota — SDCL §60-2-1

Same Field Code lineage. Same indemnification language as Montana and North Dakota. Source: SDCL §60-2-1.

New Hampshire — RSA 275:57

Different structure than the Field Code states. Employee must submit "proof of payment"; employer must reimburse within 30 days of submission. Willful violation carries up to $1,000 civil penalty per violation plus interest. Enforced by the NH Department of Labor and through private action under RSA 275:51.

"An employee who incurs expenses in connection with his or her employment and at the request of the employer, except those expenses normally borne by the employee as a precondition of employment, which are not paid for by wages, cash advance, or other means from the employer, shall be reimbursed for the payment of the expenses within 30 days of the presentation by the employee of proof of payment."

Source: RSA 275:57.

Iowa — Iowa Code §91A.3(6)

"Expenses by the employee which are authorized by the employer and incurred by the employee shall either be reimbursed in advance of expenditure or be reimbursed not later than thirty days after the employee's submission of an expense claim."

A timing rule, not a duty-creating rule — Iowa requires 30-day reimbursement of authorized expenses but doesn't independently make any specific expense "authorized." The Wage Payment Collection Law (Chapter 91A) carries enforcement. Source: Iowa Code §91A.3.

Minnesota — Minn. Stat. §177.24

Narrow. Bars employers from deducting from wages for required uniforms, equipment, consumable supplies, or travel expenses if the deduction would reduce wages below the minimum wage. Cap of $50 total deduction for uniforms / equipment. At termination, the employer must refund the full amount deducted. Functionally a state-law analogue to the federal kickback rule. Source: Minn. Stat. §177.24.

New York — NY Labor Law §198-c

"Benefits or wage supplements" include "reimbursement for expenses; health, welfare and retirement benefits; and vacation, separation or holiday pay." An employer that is party to an agreement to pay such supplements must pay within 30 days, with willful failure a misdemeanor.

Critical limitation: §198-c only operates where there is an underlying agreement (contract, handbook, policy). It does not create a free-standing reimbursement duty. Exempts executive, administrative, and professional employees earning over $1,300/week. Source: NY Labor Law §198-c.

District of Columbia — 7 DCMR §908 + §910

DC has no §2802-style general indemnification statute. The District's wage-hour regulations address narrow categories:

• 7 DCMR §910 (Tools): "The employer shall pay the cost of purchasing and maintaining any tools required of the employee in the performance of the business of the employer."
• 7 DCMR §908 (Uniforms / Protective Clothing): Employer must pay for purchase, maintenance, and cleaning of required uniforms or protective clothing. In lieu of furnishing, employer may pay $0.15/hr extra (capped at $6/week) for both purchase and cleaning, $0.10/hr if employer purchases but requires employee to clean, or $0.08/hr if employee purchases but employer cleans.

Source: DC 7 DCMR Chapter 9.

Pennsylvania — fringe-benefit rule (no statute)

Pennsylvania has no expense-reimbursement statute. Where the employer has agreed (handbook, policy, contract) to reimburse, the unreimbursed amount is treated as a "fringe benefit" under the Wage Payment and Collection Law (43 P.S. §260.1 et seq.) and must be paid within 60 days of the claim. Otherwise the only protection is the federal kickback floor at $7.25/hr.

Seattle — SMC 14.20 (Wage Theft Ordinance)

Effective April 1, 2015. Defines "compensation owed" to include reimbursable expenses under the contract or applicable law. The ordinance criminalizes wage theft (a gross misdemeanor) and authorizes administrative enforcement by the Seattle Office of Labor Standards, plus a private right of action with attorney's fees, costs, and treble damages for willful violations.

For independent contractors performing work in Seattle, the Independent Contractor Protections Ordinance, SMC 14.34 (effective September 1, 2022) requires pre-contract disclosure of "typical expenses to be reimbursed by the hiring entity" and itemized payment statements showing "expenses reimbursed."

Cell-Phone Reimbursement — The Most-Litigated Topic of the Decade

Three rules to know:

1. California (Cochran): "Reasonable percentage" of the employee's monthly cell phone bill is owed whenever the personal phone is "required" for work — regardless of plan type or marginal cost. The most common compliance pattern is a fixed monthly stipend (commonly $30–$100) or a percentage of the bill negotiated case-by-case.
2. Illinois (820 ILCS 115/9.5): Same theory if cell phone use is required and inures to the employer's benefit. The employer can cap reimbursement by written policy; the cap must be reasonable.
3. Everywhere else: No general duty. The federal kickback rule protects only minimum-wage workers from cell-phone costs that drop pay below $7.25/hr.

"Required" is interpreted broadly. An employer that calls or texts the employee on a personal number, sends work alerts via a personal phone app, or expects responsiveness without issuing a company device has "required" the cell phone use under Cochran — even without a written policy mandating it.

The Remote-Work Expense Explosion (post-2020)

The COVID stay-at-home orders of 2020–2021 sent millions of California and Illinois employees home with no employer equipment subsidy. The post-pandemic litigation wave is still unfolding in 2026.

What counts as a reimbursable home-work expense

• Home internet. Universally claimed as reimbursable in California and Illinois. Thai v. IBM confirmed for California. Employers commonly pay a flat $30–$75/month stipend.
• Cell phone. Pre-existing Cochran liability extended to fully-remote employees who relied on personal phones for all work calls and messaging.
• Home-office equipment. Chairs, monitors, headsets, desks. Thai confirmed reimbursable; employers commonly issue an initial equipment stipend ($500–$1,500) or ship equipment outright.
• Electricity and heating. Theoretically covered under §2802 but rarely litigated solo; usually rolled into a "home-office stipend."
• Co-working / desk-share fees. When the employee chooses, no. When the employer requires, yes.

Insurance posture: §2802 is usually carved out

Most employment-practices liability insurance (EPLI) policies exclude §2802 claims, so these settlements come out of operating budget, not insurance. The biggest exposure is multi-year backpay with 10% interest under §2802(b) plus attorney's fees under §2802(c), which routinely doubles or triples the naked unreimbursed-cost figure. Treat post-2020 California remote work without an expense stipend as an open liability until either (a) it ages out of the four-year UCL window, or (b) the employer has paid a stipend that survives an adequacy challenge.

Multi-State Employees and the Work-Location Rule

The reimbursement rule follows the employee's work location, not the employer's headquarters. Concrete scenarios:

• California-remote employee of a Texas employer. California §2802 applies. Employer must reimburse cell, internet, home office, and mileage. Williams v. Amazon confirmed.
• Illinois-remote employee of a Florida employer. 820 ILCS 115/9.5 applies. Same reimbursement duties.
• Texas-remote employee of a California employer. No state duty. Only the federal kickback floor at $7.25/hr.
• Employee splits time between California (4 days/week) and Nevada (1 day/week). California §2802 applies to expenses incurred for the California-side work. Safest practice is to apply CA rules across the board to avoid prorating.
• Traveling sales rep crossing CA, IL, NY, AZ in a single week. Expenses incurred while working in CA and IL are governed by §2802 and 820 ILCS 115/9.5. Most employers default to one national reimbursement policy at the highest-state floor to avoid the tracking burden.

The HR/payroll system has to track each employee's primary work location at sufficient granularity to support a §2802 audit (date, location, project). Without that, the burden-shifting from California's general recordkeeping duty under Labor Code §1174 and our recordkeeping guide can produce default judgments on unreimbursed-expense claims when the employer can't prove who worked where.

Tax Treatment — Accountable Plans

Under 26 CFR §1.62-2, employer reimbursements escape W-2 wage treatment if the plan is an accountable plan. Three elements:

1. Business connection. Reimbursement is for an expense deductible under IRC §162 (ordinary and necessary business expense).
2. Substantiation. Employee documents amount, time, place, and business purpose within a reasonable time (generally 60 days).
3. Return of excess. Employee returns any reimbursement exceeding substantiated amount within a reasonable time (generally 120 days).

Plans that fail any prong are "non-accountable" — all reimbursement is treated as W-2 wages, subject to payroll tax. The W-2 employee has no offsetting deduction for the underlying business expense: the OBBBA (2025) made the TCJA §67(g) suspension of miscellaneous itemized deductions permanent, effective January 1, 2026, with a narrow educator-expense carve-out.

Reimbursement at or below the IRS rate ($0.725/mile in 2026) is presumed reasonable under an accountable plan. Reimbursement above the IRS rate must be substantiated by actual costs or the excess is W-2 wages.

FAVR plans — for high-mileage drivers

Fixed-and-Variable-Rate (FAVR) plans under Rev. Proc. 2010-51 are an IRS-blessed alternative to flat mileage reimbursement for employers running large fleets of personal-vehicle drivers. The employee gets (i) a fixed monthly stipend reflecting depreciation/insurance/registration in their geography, plus (ii) a variable per-mile rate reflecting fuel/maintenance. The 2026 maximum standard automobile cost under a FAVR plan is $61,700 (Notice 2026-10). FAVR is used by outside sales reps, field service, and pharmaceutical reps — anyone driving 15,000+ business miles per year.

Industry-Specific Rules

Four industries operate under reimbursement structures that diverge from the default §2802 / IRS-rate pattern.

Trucking and interstate commercial drivers

Long-haul truckers and over-the-road commercial drivers operate under a federal per-diem framework rather than the general §2802 pattern. Under IRS Notice 2024-68 (FY2024–25; subject to annual update via successor Notice), the special per-diem rates for transportation industry workers subject to DOT hours-of-service rules are $80/day for travel within CONUS and $86/day outside CONUS, with 80% of meal-and-incidental-expenses deductible under IRC §274(n)(3) (versus 50% for most industries). Owner-operators and 1099 drivers continue to deduct unreimbursed expenses on Schedule C; W-2 company drivers cannot deduct any unreimbursed amount under §67(g). California §2802 still applies to the in-state portion of any driver's route — Gattuso-style indemnity sits on top of the federal per-diem structure for California-base-routed drivers. DOT hours-of-service logs under 49 CFR §395.8 double as §1.274-5 substantiation when properly maintained.

Pharmaceutical, medical-device, and outside sales

The classic FAVR-plan industry. Pharma and medical-device sales reps typically drive 25,000–40,000 business miles per year — well above the threshold where flat IRS-rate reimbursement breaks even against FAVR's two-component structure (fixed monthly stipend covering depreciation + insurance + registration in the rep's geography, plus a variable per-mile rate for fuel and maintenance). The 2026 FAVR maximum standard automobile cost of $61,700 (Notice 2026-10) governs the depreciation component. Gattuso's permissible-methods framework explicitly allows FAVR as a valid §2802 method, though the rep retains the right to challenge adequacy. Outside sales reps were the plaintiff class in Gattuso itself.

Healthcare home-visit and field staff

Visiting nurses, home-health aides, hospice workers, and in-home therapy providers operate under a hybrid pattern: client-to-client travel between visits is reimbursable in California, Illinois, and the other §2802-equivalent states; commute time from home to first patient and from last patient to home is not. The DOL's Field Operations Handbook §31b00 treats inter-client travel as compensable working time under the FLSA for non-exempt healthcare staff, which means the mileage is doubly load-bearing — it triggers both wage-hour exposure (unpaid time) and reimbursement exposure (unpaid mileage). Most home-health staffing agencies pay the IRS rate × inter-visit miles plus a per-stop minimum to cover routing inefficiency.

Gig economy, app-based drivers, and independent contractors

Independent contractors are outside §2802's scope by statutory design — the statute runs in favor of "employees," and IC classification breaks the duty. But the misclassification risk under California's ABC test (codified at Labor Code §2775 following AB 5) means that a classification challenge can retroactively trigger §2802 obligations for the entire engagement period. Proposition 22 (2020) created a category-specific carve-out for app-based rideshare and delivery drivers (Uber, Lyft, DoorDash, Instacart) — they remain ICs by statute but are owed a "Healthcare Subsidy" and a mileage reimbursement of $0.30/mile (adjusted annually for inflation) for engaged miles under Bus. & Prof. Code §7451. Seattle's SMC 14.34 (Independent Contractor Protections Ordinance, effective September 1, 2022) requires pre-contract disclosure of "typical expenses to be reimbursed by the hiring entity" for any IC performing work in Seattle, and itemized payment statements showing "expenses reimbursed" — extending an expense-transparency duty into the IC space without converting the relationship to employment.

Recent Changes (2024–2026)

• IRS 2026 business mileage rate: 72.5¢ (+2.5¢ from 2025). Notice 2026-10, issued December 29, 2025 (IR-2025-128), reflects elevated vehicle ownership costs and insurance premiums. Medical/moving rate fell from 21¢ to 20.5¢. Depreciation portion of the business rate rose from 33¢ to 35¢.
• OBBBA made §67(g) permanent. The One Big Beautiful Bill Act (2025) amended IRC §67(g) to permanently disallow miscellaneous itemized deductions, locking in the TCJA suspension that was set to expire 12/31/2025. Effective January 1, 2026, W-2 employees cannot deduct unreimbursed business expenses on their federal return at all. Narrow educator-expense carve-out preserved. Practical effect: every W-2 employee in a state without a §2802 equivalent now bears 100% of unreimbursed work expenses with no tax offset, shifting the structural cost firmly onto the employer.
• Moving-rate scope expanded by OBBBA §70113(b). The IRS moving mileage rate (20.5¢ in 2026) is available to active-duty military and intelligence-community personnel relocating under qualifying orders. Every other employer-paid moving expense is taxable W-2 income.
• Thai v. IBM closed the COVID-stay-home defense (July 2023). California Court of Appeal rejected the "the governor caused it, not us" theory. Every California employer that sent workers home in 2020–2021 without an expense stipend sits on a §2802 exposure that is still inside the four-year UCL window for claims accruing through mid-2022.
• Illinois §9.5 enforcement uptick. Illinois enforcement under §9.5 ramped up materially through 2024–2025, with much of the activity targeting remote-work expenses for Illinois employees of out-of-state employers.

Frequently Asked Questions

If You Discover You've Been Under-Reimbursing

The decision to remediate proactively is almost always cheaper than waiting for a class action — but the remediation steps have to be sequenced carefully or they create their own exposure.

1. Quantify the exposure first, in writing, under privilege. Engage employment counsel and have them direct the audit. The product of the audit (which employees, what categories, what amounts, what time period) becomes attorney work product. Without that posture, the audit memo itself becomes Exhibit A in the lawsuit. The math should cover: principal unreimbursed amounts × number of affected employees × the lookback period (3 years for §2802, 4 years if UCL repackaging is plausible) × 1.10 compounded for §2802(b) interest. Add 25–40% as a placeholder for attorney's-fee exposure under §2802(c). The four-year UCL window in mid-2026 reaches back to expenses incurred from mid-2022 forward — every COVID-era expense incurred from 2020 through mid-2022 is approaching the SOL bar but most of the post-Thai remote-work cluster is still inside the window.
2. Decide on a voluntary-payment posture and document the rationale. Voluntary §2802 payments do not require the employee's signed waiver to extinguish the underlying claim, but a written communication explaining what is being paid, for what period, and on what theory creates evidence of good faith. California Labor Code §206.5 prohibits requiring employees to sign a release as a condition of receiving wages owed — including reimbursement amounts. Pay first; ask second if at all.
3. Update the go-forward policy before — or at the latest, simultaneously with — the back-payment. Issue a written expense-reimbursement policy that covers mileage (IRS rate or above, with a "challenge process" for employees claiming actual costs exceed it), cell phone (monthly stipend with a clear formula), home internet (monthly stipend), home-office equipment (one-time stipend or company-provided), and a 30-day submission process matching Illinois §9.5's window. Without the prospective fix, every back-payment cycle is a new accrual.
4. Run reimbursements through an accountable plan. Confirm that the back-payment and the go-forward stipend both satisfy §1.62-2's three prongs (business connection, substantiation, return of excess). Non-accountable plans turn every dollar of reimbursement into W-2 wages, multiplying the cost by ~30% in employer-side payroll tax and FICA.
5. Consult counsel before the exposure exceeds $50,000 in any single employee or $250,000 in aggregate. Below those thresholds, voluntary payment with documentation usually closes the issue. Above, expect plaintiffs' counsel to learn of the remediation and consider a class-wide claim regardless. The remediation arithmetic still favors paying — interest under §2802(b) compounds against the employer every day the exposure sits unpaid — but the structuring of the payment, the policy update, and the communication to employees becomes load-bearing.

The Through-Line

Three structural failures produce most of the reimbursement liability: treating the IRS rate as the duty (it isn't, in either direction); treating COVID-era remote-work expenses as a problem that already washed out (the four-year UCL window keeps every 2020–2022 expense alive through 2026); and running a non-accountable reimbursement plan that the IRS recharacterizes as W-2 wages while the W-2 employee absorbs the underlying cost with no federal deduction.

The single highest-leverage move for any multi-state employer in 2026 is one written reimbursement policy that meets California §2802's adequacy standard everywhere it applies — mileage at the IRS rate with a documented actual-cost challenge process, a monthly cell-phone stipend, a home-office equipment stipend, and a 30-day submission window matching Illinois §9.5. Pair it with payroll/HR records that capture each employee's work state and per-trip mileage with §1.274-5 substantiation, and the per-state policy fragmentation that produces the exposure disappears. See our pay-stub requirements guide for the §226 wage-statement mechanics that intersect with reimbursement, and the recordkeeping guide for the §1174 records that have to be retrievable when an audit hits.

Sources

Federal

• 29 CFR §531.35 (Free-and-clear / kickbacks)
• 29 CFR §531.32 (Facilities)
• DOL Field Operations Handbook, Chapter 30
• IRS standard mileage rates index
• IRS Notice 2026-10 (2026 rates)
• IRS Notice 2025-5 (2025 rates)
• IRS Notice 2024-08 (2024 rates)
• 26 CFR §1.274-5 (Substantiation)
• 26 CFR §1.62-2 (Accountable plans)
• OBBBA provisions overview (IRS)

State

• CA Labor Code §2802
• CA Business & Professions Code §17208 (UCL)
• 820 ILCS 115/9.5 (Illinois)
• MGL c.149 §148 (Massachusetts Wage Act)
• 454 CMR 27.04 (MA DLS minimum-wage reg)
• MCA §39-2-701 (Montana)
• RSA 275:57 (New Hampshire)
• NDCC §34-02-01 (North Dakota)
• SDCL §60-2-1 (South Dakota)
• Iowa Code §91A.3
• Minn. Stat. §177.24
• NY Labor Law §198-c
• Seattle SMC 14.20 (Wage Theft Ordinance)
• Seattle SMC 14.34 (Independent Contractor Protections Ordinance)
• 7 DCMR Chapter 9 (DC wage-hour rules)