IRS Increases 2026 Business Mileage Rates: What Workers Need to Know
The Mileage Rate Bump You’ll Feel in Your Wallet
I was reconciling a client’s books last week, a freelance photographer who crisscrosses the state for gigs, when I saw the number that made her whole year. Her mileage log was a monster, over 15,000 miles. Running the new 2026 rate, her deduction jumped nearly $400 from what it would have been last year. She didn’t get a raise from her clients, but the IRS just handed her one.
That’s the thing about tax changes. They often feel like abstract numbers on a government webpage until you apply them to the reality of your workday, your car, your life. The headline is simple: starting January 1, 2026, the standard mileage rate for business use of your car, van, or pickup truck is 72.5 cents per mile. That’s a solid 2.5-cent increase from the 2025 rate. For anyone who drives for a living, the independent contractors, the realtors, the gig workers, the small business owners logging supply runs, this isn’t just trivia. It’s real money back in your pocket.
But here’s where the story gets richer. This mileage bump isn’t happening in a vacuum. It’s part of a sweeping set of changes rolling out in 2026 under the “One Big Beautiful Bill” Act, a law that’s reshaping the tax landscape in ways both big and small. Think of it as a domino effect. While the business rate ticks up, the rate for medical and moving purposes saw a slight dip to 20.5 cents per mile, and the charitable rate holds steady at 14 cents. The IRS tweaks these figures annually based on studious reviews of vehicle costs, and for 2026, the math clearly favored the business driver.
And remember, the standard rate is your optional shortcut. You can always choose to calculate your actual expenses, gas, insurance, repairs, depreciation, if that yields a bigger number. But for most everyday drivers, the simplicity of the standard rate is a gift. Just multiply your business miles by 72.5 cents. Done. One crucial rule, though: if you lease your vehicle, you’re locked into using the standard mileage method for the entire lease period if you choose it first.
Beyond the Dashboard: A Tax Cut for the Work Behind the Wheel
Now, let’s shift focus from your odometer to your paycheck. Because for many workers, the most immediate impact of the 2026 changes might not come from mileage at all, but from two brand-new deductions designed for everyday labor.
First, there’s the tips deduction. If you work in a job that customarily receives tips, wait staff, bartenders, hotel staff, drivers, a new break is here. You can now deduct your qualified cash tips right off your income, up to a maximum of $25,000. These aren’t mandatory service charges but the voluntary tips you receive from customers or through tip pools. The idea is simple: to put more of your hard-earned gratuity back in your hands.
Second, consider the overtime deduction. For the millions punching extra hours, the new law lets you deduct the premium portion of your overtime pay. Think of it as the “half” in “time-and-a-half.” If your regular rate is $20 and you get $30 for overtime hours, you can deduct that extra $10 per hour. There’s an annual cap of $12,500 (or $25,000 if filing jointly), offering significant relief for those who trade their time for extra income.
Here’s the beautiful part: these aren’t itemized deductions. You can claim them even if you take the standard deduction, making them accessible to virtually every eligible worker. Of course, there are phase-outs for higher incomes (starting at $150,000 for single filers), but for the typical server pulling double shifts or the factory worker on the weekend line, this is a direct acknowledgment of their effort.
It’s a philosophical shift, really. The tax code is starting to recognize the value of sweat and service in a more granular way.
The Foundation Shifts: Standard Deductions and Shelves Full of New Breaks
Alright, so your per-mile cost is covered and your tips are a bit more yours. What about the foundation of your return? That’s shifting too.
In 2026, the standard deduction, the amount you can automatically subtract from your income, is taking another step up. It’s how the government keeps pace with inflation. For married couples filing jointly, it rises to $32,200. For single filers, it’s $16,100. This increase means more income is shielded from tax right off the bat for millions of Americans, simplifying filing and providing a baseline of relief.
But the new provisions add some fascinating shelves to this foundational structure. Let’s browse a few:
- The Senior Deduction: If you’re 65 or older, you may qualify for an additional $6,000 deduction ($12,000 for a qualifying couple) on top of your standard deduction from 2025 through 2028. It’s a targeted boost for living expenses in retirement.
- The Car Loan Interest Deduction: In a move that surprised many, a deduction for interest on personal car loans arrived. If you took out a loan after December 31, 2024, to buy a U.S.-assembled vehicle for personal use, you can deduct some of the interest, up to $10,000 annually. It phases out at higher incomes, but it’s a novel form of relief for a major household expense.
- Health & Family Tweaks: The limits for Health Flexible Spending Accounts (FSAs) are rising to $3,400. More significantly, the Dependent Care FSA limit is jumping dramatically from $5,000 to $7,500 per household, helping families manage the staggering cost of childcare.
It’s a mix, some adjustments are automatic inflation fixes, while others are conscious policy choices creating new avenues for savings.
For the Business Owner: More Than Just Mileage
If you run the show, your 2026 planning just got more interesting. The mileage rate is a nice perk, but the “One Big Beautiful Bill” delivered some heavyweight tools for small businesses and self-employed individuals.
The crown jewel for many is the permanent extension of 100% bonus depreciation. That means you can generally deduct the full cost of qualifying equipment or software in the year you put it in service, rather than depreciating it over several years. Thinking about a new work truck, manufacturing gear, or tech stack? The tax code just became a powerful partner in that investment.
Similarly, the 20% Qualified Business Income (QBI) deduction for pass-through entities (like LLCs, S-corps, and sole proprietorships) is now permanent. This deduction, which can shield up to 20% of your business income from tax, also saw its income phase-out thresholds expanded, allowing more business owners to qualify for the full benefit.
And for businesses that support their employees’ families, the Employer-Provided Childcare Credit is getting a massive boost. The maximum credit is leaping from $150,000 to $500,000 (and $600,000 for eligible small businesses). If you’ve considered offering childcare benefits, the financial incentive to do so just became formidable.
The Takeaway: It’s About Keeping More of What You Earn
We started with a simple number: 72.5 cents per mile. But as we’ve seen, that number is a gateway to a broader story about the 2026 tax year. It’s a story of tangible recognition, for the wear and tear on your car, for the extra hours you log, for the tips you earn with a smile.
Tax planning can feel like a defensive game, but these changes offer a chance to play offense. It’s about knowing the rules so you can claim what’s designed for you. Whether you’re tracking miles on a notepad, reporting tips on a W-2, or planning a major equipment purchase for your company, the message is clear: more of your money is meant to stay with you.
The key is to not let these breaks become an afterthought. Talk to your tax advisor about the new deductions. Update your Form W-4 if you’re eligible for the tips or overtime deduction to see the benefit in each paycheck. Keep that mileage log pristine. Because the real story of the 2026 tax changes isn’t written in the Internal Revenue Bulletin; it’s written in the financial relief they provide to the people who are driving, building, and serving every single day.