Do I Have to Reimburse Employees for Mileage? Rules by State and Province for 2026

Do I have to reimburse employees for mileage? The honest answer is: it depends on where your business operates, and the answer isn't the same question in every state or province. In most of the US it's a business decision, not a legal one — until it isn't. In Canada, the legal picture works differently than most HR managers assume.

The short answer, before the details

• Most US states: No federal law requires mileage reimbursement, but a small number of states do — and getting this wrong has real payroll-law exposure, not just an unhappy employee.

• California, Illinois, and Massachusetts: Yes, reimbursement is a legal requirement, not optional, under state-specific employment law.

• Canada: No CRA rule forces an employer to reimburse per-kilometre driving, but the CRA sets the rate that determines whether a reimbursement is treated as taxable income to the employee — get the rate wrong and you create a tax problem even with the best intentions.

Where reimbursement is a legal requirement, not a policy choice

California requires reimbursement of all "necessary expenditures" an employee incurs doing their job, under Labor Code Section 2802 — this has been interpreted by courts to include mileage for business use of a personal vehicle. Unreimbursed mileage can effectively become a minimum-wage violation if it pushes an employee's net pay below the wage floor.

Illinois added an explicit expense-reimbursement requirement to its Wage Payment and Collection Act, covering necessary expenditures incurred within the employee's job duties — mileage for business driving falls under this.

Massachusetts treats unreimbursed business expenses, including mileage, as a wage-law issue under its business expense law, with the same practical effect: an employee who's out of pocket for required driving has a legal claim, not just a grievance.

Outside these states, federal law (the FLSA) doesn't require mileage reimbursement directly — but the same minimum-wage-floor logic can apply if unreimbursed expenses drag an employee's effective pay below minimum wage. This is why "no state mandate" doesn't mean "no risk" everywhere else.

The Canadian picture is a different question entirely

Canada doesn't have a direct legal mandate forcing reimbursement the way California does. But the CRA's automobile allowance rate matters just as much, for a different reason: it determines whether what you pay an employee is treated as a non-taxable reasonable allowance or as taxable income that needs to go through payroll.

The current CRA rate (per Finance Canada, effective 2026) is 73¢/km for the first 5,000 km driven, 67¢/km after that, with an additional 4¢/km in the territories. Pay at or below this rate, on a per-kilometre basis tied to actual business kilometres driven, and it's generally treated as non-taxable. Pay a flat allowance unrelated to kilometres actually driven, or pay above the reasonable rate without justification, and the CRA can treat some or all of it as a taxable benefit — creating a payroll and T4 problem you didn't intend to create.

Quick-reference table

Jurisdiction	Legally required?	What actually matters
California	Yes	Labor Code 2802 — reimbursement required, can become a wage-floor issue if skipped
Illinois	Yes	Wage Payment and Collection Act — explicit expense reimbursement requirement
Massachusetts	Yes	Business expense law treated as a wage issue
Other US states	Not directly mandated	FLSA minimum-wage floor risk if unreimbursed expenses drag pay below minimum wage
Canada (federal/CRA)	Not directly mandated	Reimbursement rate determines taxable vs. non-taxable treatment — 73¢/67¢ per km (2026), +4¢ territories

Frequently asked questions

Do I have to reimburse employees for mileage if I'm not in California, Illinois, or Massachusetts? Not by direct state mandate, but the federal minimum-wage floor under the FLSA can still create exposure if unreimbursed business mileage effectively drops an employee's pay below minimum wage for the hours worked.

Is a mileage allowance the same as reimbursement for CRA purposes? Not automatically. A flat allowance unrelated to actual kilometres driven can be treated as taxable income, while a reasonable per-kilometre reimbursement tied to actual business driving, at or below the CRA rate, is generally non-taxable.

What happens if I reimburse above the CRA rate? The excess amount is generally treated as a taxable benefit unless it can be justified with documented actual vehicle costs, which most employers aren't set up to track.

Does this apply to occasional business driving, or only employees who drive constantly? The legal requirements above don't distinguish by frequency — an employee who drives their own car for work occasionally is generally covered the same way as one who drives daily, in the states and situations described above.

So, do I have to reimburse employees for mileage? The bottom line

If you're in California, Illinois, or Massachusetts, the answer is yes — it's a legal requirement, not a policy preference. Everywhere else in the US, it's not directly mandated, but the minimum-wage-floor risk means it's worth treating as more than optional. In Canada, the CRA doesn't force reimbursement, but it does set the rate that decides whether what you pay is tax-clean or a payroll headache.

Next in this series

Knowing whether you're legally required to reimburse is step one. The next post covers a related but separate question a lot of HR managers assume is the same thing and isn't: whether you're liable if an employee crashes their own car on a work trip.

Fuelshine calculates and enforces compliant mileage reimbursement — CRA and IRS rate-accurate, with active enforcement of license and insurance validity — for teams of 50-200 employees. Learn how it works or book a walkthrough.