The standard business mileage rate employers can use to reimburse employees tax-free for the business use of their personal vehicle is 70 cents-per-mile for 2025, a 3-cent increase from 2024’s 67 cents-per-mile rate.
The standard business mileage rate also can be used to calculate taxable personal use of a company car by an employee under one method of valuing such use. According to the IRS, the amount that must be included in the employee’s income and wages for the personal use of an employer-provided automobile generally is determined by referencing the automobile’s fair-market value.
Other vehicle valuation amounts relevant to payrolls that account for fleets of vehicles and apply certain methods for valuing personal use of company cars for tax purposes also were included in Notice 2025-05.
IRS provides the tax-deductible costs of operating an automobile for business purposes, official medical purposes or moving purposes (for military personnel only), and provides several other tax-related calculations for personal use of company cars annually as an official notice. The medical and moving rate for 2025 remains at 21 cents-per-mile, according to the IRS.
The tax-free mileage amount for medical or charitable purposes is set by law, and is set at 14 cents-per-mile.
The standard mileage rate applies to cars, vans, pickups or panel trucks.
Ways to Value Vehicle Use for Tax Purposes
The IRS allows businesses choices for how to determine the tax impact of vehicles.
Employers can always opt to apply actual costs for vehicle use instead of the standard business mileage rate, IRS said.
The standard mileage rate generally is used for the first year the car is available for business use instead of actual expenses. After the first year of business use, employers can choose either the standard mileage rate or actual expenses. If the standard mileage rate is chosen for leased vehicles, businesses must continue to use the standard mileage rate method for the entire lease period (including renewals), IRS said.
The notice also provides information on valuing the business use of vehicles under the fixed and variable rate plan (FAVR) option. This plan allows employers to pay employers an allowance that includes a combination of payments covering fixed and variable costs. It may include a cents-per-mile rate to cover variable operating costs (such as gas, oil, etc.) plus a flat amount to cover the employee’s fixed costs (such as depreciation (or lease payments), insurance, etc.).
Fleet Average Valuations
The maximum fair market value of employer-provided autos first made available to employees for personal use in calendar year 2025 for which employers may use the fleet-average valuation rule, or the vehicle cents-per-mile valuation rule is $61,200 for automobiles (including trucks and vans). This is less than the $62,000 valuation for cars first made available in 2024.
Author: Michael Baer
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.
The standard business mileage rate employers can use to reimburse employees tax-free for the business use of their personal vehicle is 70 cents-per-mile for 2025, a 3-cent increase from 2024’s 67 cents-per-mile rate.
The standard business mileage rate also can be used to calculate taxable personal use of a company car by an employee under one method of valuing such use. According to the IRS, the amount that must be included in the employee’s income and wages for the personal use of an employer-provided automobile generally is determined by referencing the automobile’s fair-market value.
Other vehicle valuation amounts relevant to payrolls that account for fleets of vehicles and apply certain methods for valuing personal use of company cars for tax purposes also were included in Notice 2025-05.
IRS provides the tax-deductible costs of operating an automobile for business purposes, official medical purposes or moving purposes (for military personnel only), and provides several other tax-related calculations for personal use of company cars annually as an official notice. The medical and moving rate for 2025 remains at 21 cents-per-mile, according to the IRS.
The tax-free mileage amount for medical or charitable purposes is set by law, and is set at 14 cents-per-mile.
The standard mileage rate applies to cars, vans, pickups or panel trucks.
Ways to Value Vehicle Use for Tax Purposes
The IRS allows businesses choices for how to determine the tax impact of vehicles.
Employers can always opt to apply actual costs for vehicle use instead of the standard business mileage rate, IRS said.
The standard mileage rate generally is used for the first year the car is available for business use instead of actual expenses. After the first year of business use, employers can choose either the standard mileage rate or actual expenses. If the standard mileage rate is chosen for leased vehicles, businesses must continue to use the standard mileage rate method for the entire lease period (including renewals), IRS said.
The notice also provides information on valuing the business use of vehicles under the fixed and variable rate plan (FAVR) option. This plan allows employers to pay employers an allowance that includes a combination of payments covering fixed and variable costs. It may include a cents-per-mile rate to cover variable operating costs (such as gas, oil, etc.) plus a flat amount to cover the employee’s fixed costs (such as depreciation (or lease payments), insurance, etc.).
Fleet Average Valuations
The maximum fair market value of employer-provided autos first made available to employees for personal use in calendar year 2025 for which employers may use the fleet-average valuation rule, or the vehicle cents-per-mile valuation rule is $61,200 for automobiles (including trucks and vans). This is less than the $62,000 valuation for cars first made available in 2024.
Author: Michael Baer
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.