If your nanny drives her own car for the job, reimburse her at the IRS standard mileage rate — and 2026 gives you two of them. The rate is $0.725 per mile for miles driven January 1 through June 30 and $0.76 per mile from July 1 onward, after the IRS raised it mid-year in response to fuel prices. Done correctly — through what the IRS calls an accountable plan — every dollar of it is tax-free to her and payroll-tax-free to you.
This guide covers what actually counts as reimbursable driving, how to keep the reimbursement off everyone's tax bill, the mileage log that makes a split-rate year painless, the three states where reimbursement is legally mandatory, and the contract clause that settles all of it in one paragraph. It is one piece of the broader employer picture in our nanny tax guide; the car conversation itself belongs in the work agreement, and our nanny contract template has a place for it.
The IRS business mileage rate for 2026 is $0.725/mile through June 30 and $0.76/mile from July 1 — a rare mid-year increase, so your nanny's mileage log needs a date column that sorts miles into the right half of the year. Reimbursement at or below the IRS rate under an accountable plan (business purpose + mileage log + no excess kept) is completely tax-free; anything above the rate, or any flat car allowance paid without records, is taxable wages. Work driving counts — school runs, activities, errands. Her commute to your house does not. California, Illinois, and Massachusetts make reimbursement mandatory by law; everywhere else it is contractual — but every well-run nanny job reimburses anyway.
What Driving Counts as Reimbursable?
The test is simple: miles driven for the job, in her own car, are reimbursable business miles. Miles driven to and from the job are commuting, and commuting is never a business expense — hers or anyone's.
- Reimbursable: driving your kids to school, activities, playdates, and appointments; grocery runs and household errands; driving between your home and anywhere the job sends her mid-shift.
- Not reimbursable: her drive from her home to yours and back. If you choose to pay for her commute anyway, you can — but that payment is taxable wages, not reimbursement, and it belongs in payroll.
Scale check: a nanny who drives 40 work miles a week — one school run and one activity most days — logs about 2,080 miles a year. In 2026 that reimburses at $754 for the first half of the year plus $790.40 for the second ($0.725 and $0.76 × 1,040 miles each), roughly $1,545 for the year. Real money, and cheap relative to what it buys: the rate is designed to cover gas, maintenance, depreciation, and insurance wear on a car you did not have to buy.
The Accountable Plan: How Reimbursement Stays Tax-Free
Mileage reimbursement is tax-free only under an "accountable plan" — which sounds like paperwork but is really three habits:
- Business connection. The miles were driven for the job. The log's purpose column proves it.
- Substantiation. She documents miles within a reasonable period — the IRS safe harbor is 60 days. A weekly log turned in with payroll clears this easily.
- No excess kept. If you advance money for driving, unspent amounts come back within 120 days. If you reimburse from the log, this never comes up.
Meet those three and the reimbursement is invisible to taxes: no income tax for her, no FICA for either of you, nothing on the W-2. Break them and it converts to wages. The two common ways families break them: paying above the IRS rate (the excess over $0.76 is taxable wages) and paying a flat monthly car allowance with no log — the IRS treats an unsubstantiated allowance as fully taxable compensation, which quietly costs both of you 7.65% in FICA plus her income tax. A $150/month "gas money" habit is usually the expensive version of a $130 mileage reimbursement.
The Mileage Log — and the 2026 Split-Year Wrinkle
A compliant log is four columns: date, purpose, start/end odometer (or miles), total. A shared note on her phone, a mileage app, or a notebook in the glovebox all work; the format matters less than the rhythm. Have her submit weekly, approve it, and pay the reimbursement as a separate line on the regular paycheck — labeled as reimbursement, not wages, so the payroll service excludes it from tax calculations.
The 2026 wrinkle is the date column doing extra work: miles driven through June 30 pay at $0.725; miles driven July 1 or later pay at $0.76. The rate follows the date the miles were driven, not the date you cut the check — a July payment covering late-June driving still pays $0.725 on those miles. Good payroll services updated the rate on the effective date automatically; if you run reimbursement by hand, split any log that straddles the boundary into two subtotals once, and the rest of the year is one rate. Keep the logs with your payroll records for at least four years, like every other employment record.
One question that comes up more each year: the rate does not change for electric or hybrid cars. The IRS applies the same standard rate to all vehicles — electric, hybrid, gasoline, or diesel — so a nanny driving an EV logs and reimburses identically, even though the mid-year increase was driven by fuel prices she is not paying.
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Federally, reimbursement is optional with one floor: unreimbursed job expenses cannot effectively drag a worker's pay below minimum wage. Three states go further and make reimbursement mandatory:
- California: Labor Code § 2802 requires employers — household employers included — to reimburse all necessary work expenses. Paying the IRS rate is presumed reasonable; refusing to reimburse a nanny who drives for the job is a wage violation, not a style choice.
- Illinois: the Wage Payment and Collection Act (820 ILCS 115/9.5, in force since 2019) requires reimbursement of necessary expenses and bars "de minimis" reimbursement policies.
- Massachusetts: regulation 454 CMR 27.04 requires payment for travel time and reimbursement of transportation expenses when an employee travels during the workday.
Everywhere else, the contract governs — which is exactly why the clause below exists. Practically, the market has already decided: experienced nannies expect the IRS rate, and a family that reimburses properly signals it runs the rest of employment properly too.
Whose Insurance Covers the Driving?
Two arrangements, two answers. If she drives her own car, her auto policy is primary — and personal policies can balk at regular work driving, so she should tell her insurer the car is used for work and add a business-use endorsement if required. The family should offer to cover that premium difference; the mileage rate compensates wear, not reclassified insurance. If she drives your car, add her to your policy as a listed driver before the first school run, and no mileage reimbursement applies — the car and its costs are already yours. Either way, confirm details with your insurer and, for the employment-side questions, your tax advisor; the fuller treatment is in our liability and insurance guide.
The Contract Clause That Settles It
Put the whole arrangement in the work agreement — our contract template has a transportation section for it. Working language:
The Family reimburses the Nanny for all work-related miles driven in the Nanny's personal vehicle at the current IRS standard business mileage rate ($0.76/mile as of July 1, 2026), paid with each regular payroll upon submission of a mileage log showing date, purpose, and miles. Commuting between the Nanny's home and the Family's home is not reimbursable. If the IRS adjusts the standard rate, this reimbursement rate adjusts on the same effective date.
That last sentence is what earns its keep in a year like this one — the mid-year increase flowed through automatically, with no renegotiation. While you are in the agreement, treat mileage as one leg of the benefits package alongside guaranteed hours and a health benefit like a QSEHRA: three modest line items that together are why experienced candidates pick one offer over another.
The Bottom Line
Reimburse at the IRS rate, run it through an accountable plan, and the whole topic costs you a log review and roughly $1,500 a year at typical driving volume — tax-free on both sides. The families who get this wrong are rarely stingy; they are informal. A flat allowance with no log turns tax-free reimbursement into taxed wages, and a missing clause turns a $0.035 rate change into an awkward conversation. Fifteen minutes with the contract template fixes both permanently.
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