A guide to mileage reimbursement for construction employers

Driving is part of how construction teams get the job done, whether it’s a foreman covering two active sites or a tech hauling materials from the yard. That routine travel is fine when they’re behind the wheel of a company truck. But when crews use their own vehicles, fuel and wear add up fast.

Mileage reimbursement helps companies compensate staff for their vehicle usage. If construction companies ask employees to use their own car, they should have reimbursement policies in place. While no federal laws mandate employers to reimburse employees for travel, some states do. Plus, Internal Revenue Service (IRS) rules help companies avoid tax on reimbursements. 

This guide explains mileage reimbursement in a construction context and lays out the relevant IRS rules and rates.

What is mileage reimbursement?

Mileage reimbursement is when employers pay employees back after they use their own vehicle for business purposes. Finance teams usually work out costs on a per-mile basis. They typically include:

• Fuel
• Vehicle maintenance
• Vehicle depreciation
• Insurance

Mileage reimbursement doesn’t include other travel costs like per diem rates for out-of-town jobs, hotel lodging, and specialized tool allowances. It also doesn’t include fuel and expense reimbursement for company-owned vehicles, which finance handles through receipt-based expense submissions, fuel cards, and direct vendor accounts. 

As of 2026, the IRS suggests a standard reimbursement rate of 72.5 cents per mile for general business travel. Companies can simply adopt this figure or use it as a starting point for their own policies. When contractors follow IRS recommendations and policies, any mileage reimbursements they pay aren’t taxable. 

Note that the federal government doesn’t explicitly require companies to pay a standard mileage rate. However, under Fair Labor Standards Act (FLSA) kickback rules, companies can’t let unreimbursed expenses put a worker’s hourly wage below the federal minimum. This matters most for contractors employing entry-level laborers. Workers earning close to the wage floor can drop below the legal minimum after the cost of a long drive to the supply yard or between jobsites, which puts the contractor in violation of the FLSA. A handful of states, including California, Illinois, and Massachusetts, have stricter rules.

State-specific laws

Under California Labor Code Section 2802, employers must cover reasonable expenses employees incur while carrying out their duties. This includes travel-related expenses, but not commuting to and from work.

Similarly, the Illinois Wage Payment and Collection Act requires employers to compensate for necessary expenditures and losses incurred within their scope of employment. The law includes vehicle expenses, though again, commutes between home and jobsites don’t qualify.

Massachusetts regulation 454 CMR 27.04(4)(b) specifically mentions mileage reimbursement, stating that when a company requires an employee to travel during the workday, they should compensate for all travel time and transport expenses. Like California and Illinois, Massachusetts law doesn’t include commuting.

What mileage reimbursement covers

Seeking to standardize mileage reimbursement, the IRS established clear rules on what does and doesn’t qualify. These policies also dictate when mileage reimbursement is tax-free. Following the agency’s recommendations makes it easier to distinguish between different costs and compensate employees accordingly. 

Here’s what companies should and shouldn’t include in reimbursement, according to the IRS. 

Non-reimbursable commuting

The IRS doesn’t recognize home-to-primary-worksite travel as reimbursable. Instead, it counts it as a personal expense. This is because the distance employees live from their workplace is their own choice. 

Some employers offer commuter perks as part of their benefit packages, but this doesn’t qualify as mileage reimbursement. Contractors should clearly communicate their specific policies to field crews. This way, staff know which reimbursements they can collect and why. 

Qualifying business driving

Under mileage reimbursement policies, employees can submit a claim for any use of their personal vehicle solely for business purposes. However, if an employee uses their personal vehicle for both personal and business reasons, they can only deduct the costs related to business activities. 

Say a super drives from home to a jobsite, runs to the supply yard to pick up rebar mid-day, then heads to a second active site. Under standard regulations, the morning commute from home to the first site doesn’t qualify for mileage reimbursement. But the midday run and the trip between the two active jobsites do count as direct business travel that the company must reimburse.

To help finance accurately calculate mileage reimbursements, employees should carefully document all business-related personal vehicle use.

IRS mileage reimbursement rules

Here’s a more thorough look at IRS rules on mileage reimbursement.

2026 standard mileage rate

The IRS set the standard mileage rate for 2026 at 72.5 cents per mile. This rate covers business and self-employed use, which includes construction. The IRS sets separate rates for charitable, medical, and military travel. The IRS recalculates the business, medical, and moving rates each year based on a study of fixed and variable vehicle operating costs. The charitable rate is set by statute and only changes when Congress acts.

Note: The IRS considers any reimbursements over the standard rate as taxable income for employees. To avoid unexpected tax liabilities, contractors should make sure they’re following the agency’s recommendations.

Standard mileage rate vs. actual expense method

Employer reimbursement calculations can either follow standard mileage reimbursement rates or use the “actual expense” method. Following the IRS-recommended 72.5 cents per mile is simpler and easier to administer at scale, but it isn’t always accurate. 

The actual expense method involves adding up vehicle expenses and calculating the deduction based on how much time the employee used the vehicle for business purposes. This often leads to more accurate payouts. By using exact numbers instead of broad estimates, contractors protect themselves from undercompensating employees, which can trigger costly Department of Labor (DOL) wage complaints. It also ensures the business doesn’t overpay for vehicle operation.

Accountable plan requirements

For mileage reimbursements to stay free of income tax, they must qualify as an “accountable plan” according to the IRS. This means they must include: 

• A documented business connection
• Detailed expense substantiation from the employee, like mileage logs tied to a specific job, GPS records, or expense reports submitted through the company app 
• The return of any excess reimbursement 

If trips don’t follow these criteria, employers can still administer non-accountable reimbursements, but they’re no longer tax-exempt.

What does mileage reimbursement cover? Qualifying scenarios 

Only certain trips qualify for mileage reimbursement. Here’s a guide to construction-specific travel scenarios:

• Driving between jobsites: Contractors should reimburse travel between jobsites throughout the day. This commonly looks like a foreman driving to cover two or three active jobs or a technician reporting to the yard for assignments before heading to a site. Keep in mind that an employee’s commute from their home to the first site of the day, as well as the final drive back home, doesn’t qualify in most cases.
• Traveling to a temporary or out-of-area project: The exception to the commuter rule is when an employee must travel to a site outside of their normal working area. If they have documentation of the temporary assignment, the company can reimburse them for the extra travel. 
• Transporting materials and equipment: Some employees use their personal vehicles to transport tools or materials. This can include a super making a same-day Home Depot run for missing hardware, a lead carpenter hauling personal tools to a final punch-list site, or a project manager dropping off updated blueprints to an architect’s office. These trips qualify for reimbursement when they happen during work hours and tie back to a specific job.
• Visiting clients, vendors, and offsite meetings: Someone using their personal vehicle to drive to client and vendor locations counts as fully reimbursable business travel, provided the team documents the specific purpose of each trip. This applies in cases like a PM driving to a pre-construction meeting at the architect’s office, an estimator visiting a prospective jobsite for a bid walkthrough, or an owner meeting a GC at a site to sign off on a finished punch list.

How to set up a mileage reimbursement policy: 6 steps

Construction finance leaders should develop transparent mileage reimbursement policies to prevent disputes at the end of the month, eliminate late payments, and ensure employees understand which trips count. Project margins predictable” overpromises what a mileage policy actually does; the previous sentence already lists the real benefits. 

1. Define qualifying trips and scope.

Outline which types of trips qualify for reimbursement and which don’t. IRS accountable plan rules are a good starting point, but finance leaders must address construction-specific travel costs that standard mileage rates don’t cover. A comprehensive policy states exactly how the company handles bridge tolls on out-of-area jobs, parking fees at downtown jobsites, or ferry crossings for crews working an island project.

2. Set a mileage rate. 

The IRS standard rate is a common benchmark, but not every policy needs to match it. A higher rate might make more sense for certain businesses, even though it’s taxable. For accuracy, other firms might prefer to use the actual expense method instead. Whatever the calculation, make sure it’s clear in policy documentation, and update it annually to match inflation (and IRS standards if applicable). 

3. Enable mileage tracking.

Tracking miles is key to accurate reimbursement, especially if employees must use their personal vehicles often. There are a few different ways to do this, including: 

• Entering miles directly into the company system
• Inputting the starting point and destination for automatic distance calculation
• Using GPS tracking for automatic mileage

4. Establish documentation and submission requirements.

Most companies require employees to submit a reimbursement form for every business trip. This typically includes:

• Date
• Business purpose
• Origin and destination
• Total miles
• Job or cost code tied to the trip

The form should also feature a clear deadline, include submission instructions, and designate the manager responsible for approval.

5. Set up a reimbursement system.

Reimburse through payroll or a separate payment system, like Automated Clearing House (ACH). Create a mileage reimbursement category in the system so employees know what they’re receiving. 

Automation cuts admin time, but check with your team before rolling out a GPS-based system. Some crews push back on tracking in a personal vehicle, and you’ll want that worked out before the policy goes live, with clear boundaries on when the app tracks location.

6. Communicate the policy to field crews.

Write clear, accessible documentation so everyone understands the policy and what’s expected of them. Put it in the employee handbook, host it on the homepage of the company app, and post physical copies on bulletin boards in the main yard or jobsite trailer.

Manage mileage reimbursement with Miter

Managing mileage reimbursement gets complicated fast when accounting teams need to sync data across payroll, job costing, and time tracking systems. Miter Reimbursements lives on the same platform as payroll, job costing, and time tracking, so mileage flows where it needs to without separate uploads, spreadsheets, or end-of-month reconciliations.

Crews submit reimbursements from the Miter mobile app or dashboard in one of two ways. They can enter total miles directly, or input start and stop locations and let Miter calculate the driving distance through Google Maps. Either way, Miter automatically applies the preset category rate to calculate the payout.

A few features that matter for construction:

• Commute deduction at approval: Approvers can deduct a team member’s normal commute from any mileage claim to ensure the company only pays for work-related travel. Setting a default one-way or round-trip deduction on the category pre-applies the rule to every new submission automatically.
• Built-in job costing: Each reimbursement category carries job costing metadata: Job, Activity, Cost Type, and GL Account. Because Miter links these codes directly, mileage expenses flow straight into job costing reports without a separate allocation step. Admins can also lock these to guarantee crews use the right code every time.
• No effect on overtime: Proper accountable-plan reimbursements are excluded from the regular rate of pay, so they don’t inflate overtime. Mileage paid as an earning instead of through Miter’s reimbursement category gets pulled into overtime calculations under the weighted average method.
• Flexible payouts (payroll or ACH): Finance teams can select the exact payout method for each expense category. Payroll-based reimbursements sync directly with the standard pay run, while ACH reimbursements generate independent ledger entries that sync to QuickBooks Online, Sage Intacct, or other accounting software.

Frequently asked questions

How do you calculate mileage reimbursement? 

Here’s the formula for calculating mileage reimbursement at the 2026 IRS standard rate:

Reimbursable miles x $0.725 = Reimbursement amount 

For example, if an employee travels 80 reimbursable miles in a month, they’d receive $58. 

Is mileage reimbursement taxable?

Mileage reimbursement at or under the IRS standard rate isn’t taxable, provided the program meets accountable plan rules. Anything paid above the IRS rate is taxed as income.

Are employers required by law to reimburse mileage? 

Federal law doesn’t require employers to reimburse a standard mileage rate, but unreimbursed vehicle expenses can’t bring a worker’s hourly wage below the current federal minimum. Additionally, California, Illinois, and Massachusetts mandate mileage reimbursement through their own state legislation. Always research relevant state requirements to avoid penalties, especially when working across state lines. 

What documentation do employees need for mileage reimbursement? 

Mileage logs should include:

• The date of travel
• Business purpose
• Origin and destination
• Total miles driven
• Job or cost code tied to the trip

For travel-heavy companies and jobs, GPS logs and mileage apps help simplify documentation.