Why Did the Standard Mileage Rate Increase for 2025?

A new year means a new standard mileage rate, dictated by the IRS based on a study of average national costs to own and operate a vehicle. As CompanyMileage has previously reported, the standard mileage rate has been on the rise for the last four years, beginning when ballooning fuel prices drove the rate to a then record high of 62.5 cents per mile in summer of 2022. Since then, the standard mileage rate has continuously trended upward—even as gas prices stabilized—due to inflation, the cost of vehicle repairs, and supply chain shortages. As the economy started to even out toward the end of 2024, CompanyMileage predicted that for the new year, the standard mileage rate would even out, as well. 

As you may have noticed, that…didn’t happen. Instead the IRS raised the rate another three cents, to where it now stands at 70 cents per mile. 

So what accounts for the three-cent hike for 2025? 

What’s In a Rate?

According to an updated analysis by CompanyMileage, there are multiple cost factors that the IRS considers when evaluating the average costs of owning and operating a vehicle every year. Depreciation is the biggest factor, accounting for 28.3% of overall costs, followed by the cost of fuel at about 21.1%. Other smaller factors include insurance coverage at 16.2%, financing at 12.5%, licenses, registration and taxes at 7.7%, and maintenance, tires, and repair costs at 14.3%. 

Keeping that in mind, as well as what experts say 2025 has in store for vehicle costs and the vehicle market, let’s take a look at three factors that very likely contributed to this new record-high standard mileage rate: increase in the cost of buying a car, increase in insurance rates, and increases in maintenance and repair costs. 

Vehicle Costs

New vehicle costs are leveling off from previous highs of the last few years, but on average, a new vehicle remains a pricey purchase. According to cars.com, as of the beginning of 2025, the average cost of a new vehicle is $49,000 dollars. While a decrease from the price peak of $50,000 in June 2023, it’s still a far cry from the new-car average cost of $37,000 in June 2021, which is around when prices started to spike exponentially.

The price increase in the summer of 2021affected the used-car market, as well. Unlike with the new vehicle market, which experts are optimistic about thanks to an increase in incentives for new and electric vehicles, the market is expected to remain challenging for used-car shoppers this year. The average cost for a used car has been hovering between $25,000 and $26,000 since late 2024, according to Kelley Blue Book. Disruptions in car production during the height of the COVID-19 pandemic means that cars that would otherwise have hit the used car market were never made, meaning that used vehicle market shortages aren’t likely to thin out this year.  

Auto Insurance

Another factor that likely contributed to the standard mileage rate increase is the continuing prevalence of high car insurance rates. According to data provided by the U.S. Bureau of Labor Statistics, as of May 2024, insurance rates had risen 53.7% from what they were at the beginning of 2020. Additionally, in its annual report, BankRate announced that in 2024 the average cost of full coverage auto insurance was about $2,443, a whopping 26% increase for the year prior. 

While the cost of automotive insurance is projected to increase less severely, prices will still be going up this year. ValuePenguin’s State of Auto Insurance in 2025 reported that vehicle insurance costs are expected to increase by an average of about 7.5% this year. However, that data is skewed as insurance hikes this year vary widely from state to state. On January 1st of this year, multiple states, including California, North Carolina, Virginia, and Utah, enacted laws increasing minimum coverage requirements, which will cause higher premiums; in California alone, where minimum coverage requirements hadn’t changed since the 1970s, these limits have literally doubled. 

Maintenance and Repair Costs

As vehicle and insurance costs trended upward in the last four years, so too did the costs of maintaining and repairing a vehicle. At the end of the last year, consumeraffairs.com reported, using data from the U.S. Bureau of Labor Statistics, the average cost of vehicle maintenance and repair costs rose over 36% from January of 2019 to January of 2024. Those numbers aren’t projected to stop escalating soon, either. 

Whatever the Rate, Manage Mileage Reimbursement Better With CompanyMileage 

While the high standard mileage rate is beyond your control, you can still take proactive steps to manage your mileage reimbursement expenses. CompanyMileage offers a comprehensive suite of mileage reimbursement software designed to streamline the process. Our solution ensures faster, more accurate reimbursements, helping you minimize costs and maximize efficiency.

SureMileage takes a novel approach to tracking employee mileage, taking the starting and ending points of each work-related trip and calculating the best route between them for reimbursement, keeping inflated mileage, duplicate reports, and personal errands out of mileage logs. Employees can compile, edit and submit expense reports right from their smartphones, which then move through an automated, customizable approval workflow. 

Once reports are approved, our software also integrates with all major accounting and payroll software, ensuring a smooth, efficient process for everyone involved from start to finish. 

It’s important to remember that in many cases, the IRS standard mileage rate does not have to be the rate your company uses. After all, the IRS rate is national and the cost of owning a vehicle varies widely from state to state. To help you determine the best rate based on vehicle costs in your area, we’ve created our own rate calculator that you can use for free. 

CompanyMileage saves our customers up to 30% on reimbursement costs, but don’t take our word for it; contact CompanyMileage today for a demo to see for yourself how we can help you perfect your mileage reimbursement process, no matter what the market throws your way!