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.
• Pay reimbursements as a separate line on the paycheck, not folded into salary — otherwise the IRS treats them as taxable income.
• 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.

Pay the IRS rate — it's the cheapest insurance

Paying the IRS mileage rate (72.5¢ for 2026) costs you pennies per trip. Skipping it in California can cost you 3–4 years of back expenses, 10% annual interest, and the employee's lawyer fees — Illinois has its own teeth too. Write one policy at the IRS rate and apply it wherever employees use personal cars for work; that single move closes most of the exposure.