If your nanny drives her own car on the job, the IRS standard mileage rate is the number that keeps the payment tax free. Pay above it and the excess becomes wages.
The IRS publishes an optional standard mileage rate each December for the year ahead. It is a single per-mile figure that stands in for the whole running cost of a personal vehicle: fuel, oil, tires, maintenance, repairs, insurance, registration and depreciation. That is the point most families miss. The rate is not a fuel allowance. If it looks generous next to the price of a gallon of gas, that is because it is also paying for the brake job three years from now.
2026 is unusual: the rate changed part way through the year. The IRS set the business rate at 72.5 cents a mile from January 1 in Notice 2026-10, then raised it to 76 cents a mile from July 1 in Announcement 2026-11, citing the rise in fuel prices over the first half of the year. If you are reimbursing today, 76 cents is the current ceiling. If you are reconciling the full year, you have two rates to apply and the split falls at June 30.
The rates below are published IRS figures, not estimates. Confirm the current figure against the IRS standard mileage rates page before you set your policy, because a mid-year change can happen again.
| Period | Business rate | Medical rate | Guidance |
|---|---|---|---|
| Jan 1 to Jun 30, 2026 | 72.5 cents | 20.5 cents | Notice 2026-10 |
| Jul 1 to Dec 31, 2026 | 76 cents | 23.5 cents | Announcement 2026-11 |
The business rate is the one that applies to a nanny driving your children around. The medical rate is listed only so you do not reach for the wrong number when you see both quoted together.
A mileage reimbursement is tax free only because it is paid under what the IRS calls an accountable plan. You do not file anything to create one. You simply have to meet three conditions, and if you miss any of them the whole payment turns into wages.
The miles have to be driven for your benefit as the employer, in the course of the job. A trip to the pediatrician with your child qualifies. Her drive to a friend's house on her lunch break does not.
She has to account to you for the miles within a reasonable period: date, destination, purpose and mileage. A log, in other words. Not a number she recalls at the end of the month.
If you advance money and she drives fewer miles than the advance covered, she returns the difference. Most families avoid this entirely by paying in arrears against the log rather than advancing a fixed monthly amount.
Say you decide 76 cents feels stingy for a nanny driving an older car in a city, and you round the number up to 90 cents. The first 76 cents a mile stays tax free. The extra 14 cents a mile is treated as if it were paid under a non-accountable plan, which means it is wages: reportable, subject to Social Security and Medicare, and subject to income tax withholding if you withhold.
The knock-on effect is the one nobody expects. Under federal wage law, a reimbursement is left out of the regular rate for overtime only up to a reasonable approximation of the actual expense, and payments at or below the IRS rate are treated as reasonable on their face. The excess above it is not. It becomes part of the regular rate, so it raises the overtime rate for that week.
A nanny paid $25 an hour works 45 hours in a week and drives 40 work miles. You reimburse at 90 cents, so $36.00. Of that, 40 miles at 76 cents, or $30.40, is tax free. The remaining $5.60 is wages.
Her regular rate that week is not $25.00. It is $1,125 of hourly pay plus $5.60, divided by 45 hours, which is $25.12. The half-time overtime premium on her five overtime hours goes from $62.50 to $62.81.
Thirty-one cents. The money is trivial; the exposure is not. You have created a week where your payroll figure and the legally correct figure differ, and if you do that every week for two years it is the kind of thing that surfaces in a wage claim as a pattern rather than a rounding error. Pay at the rate, not above it, and the problem never exists. Live-out nannies are non-exempt under federal law and owed overtime after 40 hours, so this is not a hypothetical for most households.
The dividing line is commuting. Travel between an employee's home and her place of work is personal, whoever pays for it, and your house is her place of work. That holds even when she lives forty minutes away, even when she drives in early at your request, and even when she stops for your groceries on the way. The detour to the store is arguably work mileage; the underlying drive to your house is not.
One fair exception worth agreeing in writing: if you ask her to start the day at the school rather than at your house, the extra distance beyond her normal commute is a reasonable thing to reimburse. Write the rule down once, in the work agreement, and you will not relitigate it every February.
This is the fork in the road, and it changes the whole conversation. If your nanny drives your vehicle, there is no mileage reimbursement, because she has no vehicle expense to be reimbursed for. You are already paying for the fuel, the insurance and the depreciation. Offering her a per-mile payment on top of that is not a reimbursement at all; it is extra taxable pay wearing a reimbursement label.
If she drives her own vehicle, the standard rate is the clean answer, because it is designed to cover the costs she is actually absorbing.
The cost line in this table is a worked illustration at the current IRS rate, not a quote. Everything above it is a description of who bears which cost.
| Question | She drives your car | She drives her own car |
|---|---|---|
| Who pays for fuel | You do, directly at the pump or with a fuel card | She does, and the mileage rate is meant to cover it |
| Mileage reimbursement | None. There are no employee vehicle costs to reimburse | Yes, per work mile driven |
| Wear, tires, servicing, depreciation | Yours | Hers, and built into the standard rate |
| Insurance Check | Your policy, with her listed or covered as a permissive user | Her policy first, your policy potentially second |
| Car seats | Installed once, stay in the car | Need a second set, or a transfer routine you have both practiced |
| Tolls and parking | Reimburse separately at cost | Reimburse separately at cost, on top of mileage |
| Typical annual cost to you | Fuel plus a higher insurance premium | Roughly $700 to $2,300 for 20 to 60 work miles a week |
Almost every personal auto policy extends coverage to a permissive user, meaning someone driving your car with your consent. Families hear that and stop reading. It is not a complete answer for a household employee, for three reasons.
First, permissive use is written for occasional drivers. A nanny driving your car daily is a regular operator, and most policies expect a regular operator in the household to be listed by name. An unlisted regular driver is a common reason a claim gets questioned. Second, permissive use coverage often sits at reduced limits compared with a listed driver. Third, a policy exclusion for driving in the course of employment exists in some forms, and a nanny driving your children on your instruction is doing exactly that.
The reverse case has its own trap. When she drives your children in her own car, her policy responds first, at her limits, which may be the state minimum. Your household then relies on whatever her policy pays and on any underinsured motorist or excess liability cover you hold. If you are asking an employee to carry your children, it is reasonable to ask what her liability limits are and to pay for the difference if you want them higher.
Tell your carrier, in plain terms, that you employ a nanny, whether she drives your vehicle or her own, and that she transports your children. Ask them to confirm in writing how the policy responds in each case, whether she needs to be listed, and whether an umbrella policy is warranted. This is a ten-minute call that either costs you a small premium increase or saves you a declined claim. Note that an at-fault accident on the job can also raise questions about employer liability, which sits alongside, not inside, your workers' compensation obligations.
Most nanny roles that involve any driving land somewhere between 20 and 60 work miles a week. A single school run of three miles each way, twice a day, is about 30 miles a week on its own. Add a Tuesday swim class and a Thursday grocery shop and you are at 40 to 50 without trying. Suburban roles with two children on different schedules can reach 100.
The table assumes 50 paid working weeks a year, leaving roughly two weeks of her paid time off during which no work driving happens. The two cost columns show the same mileage at each of the two 2026 rates, so you can see the effect of the July increase. The monthly column uses the current 76 cent rate.
Mileage volumes are illustrative profiles, not survey data. The dollar figures are exact arithmetic on the published IRS rates applied to those volumes.
| Work miles per week | Miles per year | At 72.5 cents | At 76 cents | Per month |
|---|---|---|---|---|
| 20 milesOccasional errands only | 1,000 | $725 | $760 | $63 |
| 30 milesOne school run most days | 1,500 | $1,088 | $1,140 | $95 |
| 40 milesSchool run plus one activity | 2,000 | $1,450 | $1,520 | $127 |
| 60 milesTwo children, spread-out schedule | 3,000 | $2,175 | $2,280 | $190 |
| 100 milesSuburban driving nanny role | 5,000 | $3,625 | $3,800 | $317 |
Two observations. The first is that mileage is a real line item, not a rounding error: a typical 30 to 60 mile week runs $1,100 to $2,300 a year, which is on the same order as a modest raise and larger than many families assume when they say yes to the school run. The second is that the July rate change costs a 40 mile a week household about $70 a year. Worth applying correctly, not worth agonizing over. If you want to see how mileage sits against everything else you pay, the full benefits picture is the better frame, and the cost calculator puts the wage and payroll side next to daycare.
Substantiation is the requirement families skip, and it is the one that decides whether the payment survives scrutiny. The log does not need to be elaborate. A shared spreadsheet, a notes app, or a mileage tracking app that exports a monthly summary all work. What it needs to contain is fixed:
Set a rhythm: she submits at the end of each pay period, you pay it with that period's wages, and you both keep the log. Contemporaneous beats reconstructed every time.
Pay the reimbursement as a separate, clearly labeled non-taxable line on the pay stub. Do not fold it into the hourly rate, and do not settle it in cash on the side. Both shortcuts cause the same failure. Rolling it into the wage converts a tax-free payment into taxable wages for both of you and inflates the regular rate. Paying it in cash off the stub leaves you with no record that the money was a reimbursement rather than unreported wages, which is precisely the inference anyone reviewing it will draw.
Every payroll service used for household employment supports a non-taxable reimbursement line. If yours does not, that is a reason to change service, not a reason to improvise.
Mileage reimbursement is not a childcare expense. It does not go toward the Child and Dependent Care Credit and it is not eligible for a dependent care FSA, because it is not payment for care. Keep it out of those claims. If you are assembling substantiation for an FSA, the receipts you need there are a different set of documents entirely.
A fixed $150 a month with no log fails substantiation and fails return of excess. The whole amount is wages. If you want the predictability, pay an advance against a log and true it up.
Filling her tank covers fuel only, so it under-compensates her for wear and depreciation, and it is impossible to separate work fuel from personal fuel in the same tank. Pick miles, not gallons.
It is the single most common inflation of a nanny mileage claim and the easiest to spot, because the same round trip appears every working day.
Mileage rules do not stretch to cover a nanny who travels with you. A rental car, flights and lodging on a family trip are handled separately from the per-mile reimbursement, alongside the question of what counts as paid time while traveling. That is a separate budget line.
Mileage is one line in a nanny budget. See how the wage, payroll taxes and benefits compare with daycare in your situation.
Run the NumbersMileage sits on top of the wage, the payroll taxes and the benefits. Put the whole figure next to what daycare would cost you.
The figures on this page are estimates compiled from the published sources below. They are not original research: this site does not survey families, nannies, or childcare centers. Mileage rates on this page are taken directly from IRS Notice 2026-10 as modified by Announcement 2026-11; the annual cost figures are that rate multiplied by illustrative weekly mileage over 50 working weeks.
Last verified against these sources: August 2026. Prices and tax thresholds change annually, so check the current-year figure before relying on it. General information only, not tax or financial advice. See our editorial policy for how we source and correct figures.
Charles Smith
Charles writes and maintains nannyvsdaycare.com to help families cut through confusing childcare pricing and make clearer financial decisions. Read more about Charles and why he built this site.