Cents-per-mile (CPM) reimbursement pays employees a flat rate for every business mile driven in a personal vehicle. For 2026, staying at or below the IRS standard rate keeps the payment tax-free: 72.5¢/mile for trips 1 Jan-30 Jun, 76¢/mile for trips 1 Jul-31 Dec. Pay above the IRS rate and the excess becomes taxable wages.
Sources: IRS 2026 business standard mileage rate (72.5 cents per mile, Jan 1-Jun 30); IRB 2026-29 (raised to 76 cents from Jul 1); IRS Publication 463 for accountable-plan substantiation rules.
How the policy works
An employer sets a per-mile rate, at or below the current IRS rate, and pays it against a logged mileage total each pay period. No fixed monthly stipend, no regional cost data, just miles times rate. This is the simplest of the three common US reimbursement structures, alongside FAVR and a flat car allowance.
The 2026 split-year trap
2026 is a split year: 72.5¢/mile through June 30, 76¢/mile from July 1. A payroll system still running one flat annual rate either underpays the second half or overpays the first, and if it overpays past whichever rate actually applied that pay period, the excess is taxable. A worked example: an employee logging 500 business miles in March and 500 in August is owed (500 × 0.725) + (500 × 0.76) = $362.50 + $380 = $742.50, not 1,000 miles times a single rate.
Why it stays tax-free
CPM reimbursement is tax-free to the employee under an accountable plan: the payment must be tied to a business connection, substantiated by a contemporaneous log, and any excess advance returned. Miss any of the three and the IRS treats the whole payment as wages, subject to withholding.
CPM vs FAVR vs car allowance
CPM is cheapest to administer and fair for drivers with similar mileage. It under-pays low-mileage drivers relative to their fixed vehicle costs and over-pays high-mileage drivers relative to actual per-mile cost, which is the gap FAVR exists to close at larger fleet sizes. A flat car allowance skips the mileage math entirely but is fully taxable, since it is not tied to logged business use.
What the log has to show
Date, starting and ending odometer or distance, destination, and business purpose for every trip. A reconstructed log built at tax time or at an audit does not qualify as contemporaneous, and an employer who cannot produce logs behind a CPM payment risks the IRS reclassifying the whole reimbursement pool as wages.
Can an employer pay above the IRS rate?
Yes, but only the portion at or below the IRS rate is tax-free. Anything paid above it is treated as taxable wages, reported on the W-2, and subject to withholding.
Does CPM count as an accountable plan automatically?
No. The rate structure alone does not make a plan accountable. The employer still has to require a log, tie payment to business connection, and require return of any excess advance. A CPM rate paid with no log requirement is a car allowance in disguise, and taxable.
Is CPM required by law?
No federal law requires any reimbursement structure. A handful of states, see the state-by-state guide, require reimbursement of some kind but do not mandate CPM specifically.
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