How to calculate a FAVR allowance?

Matt SchweinertVehicle Reimbursement

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As the Federal Reserve interest rate benchmark continues to reach 15-year highs and operating costs continue to increase, many companies have been looking for ways to retain employees while maintaining company costs. A fixed and variable rate (FAVR) program has been popular for companies looking to compensate employees while creating predictable cash outflows. Here’s information on a FAVR reimbursement program and how to calculate a FAVR allowance.

What is a FAVR reimbursement program?

A FAVR program, which the IRS approved as non-taxable, has been in use since the late 1980s and utilized in nearly all industries, from convenience stores to pharmaceutical companies. Regardless of the number of drivers a company has, whether it be five or 20,000, a FAVR program provides the driver with an accurate reimbursement that represents the actual cost incurred by the driver while maintaining consistent company cashflows. 

Over the years, there has been an increase in the popularity of bring-your-own-device programs (BYOD). Similarly, FAVR programs enable employees to use their vehicles for personal and professional purposes, enabling driver choice. Under a FAVR vehicle reimbursement program, drivers are reimbursed based on the cost of a benchmark vehicle. This benefit gives drivers the flexibility to purchase or lease the vehicle they prefer.

“A FAVR reimbursement program is similar to a BYOD program, where companies allow employees to utilize their vehicles for both personal and professional use.”

Jim Doherty, President of
How to calculate a FAVR allowance?

To calculate a FAVR reimbursement program, you need extensive data based on the geographic location of your drivers. Trusting a FAVR provider, like, can ensure your program is HR Defensible and IRS compliant. 

When calculating a FAVR vehicle reimbursement, there are two main components: 

  • Fixed reimbursement: The fixed rate includes depreciation from a benchmark vehicle, insurance, license, registration, and property tax by state.
  • Variable reimbursement: Cost of fuel, maintenance, and tires per mile— this is based on mileage driven each month.

For the program to maintain a non-taxable income status, companies must also have comprehensive policy management that ensures that drivers’ vehicle age and value are within the IRS-approved acceptable range of the benchmark vehicle and current calendar year. 

How FAVR Plans Work
Why choose as your vehicle reimbursement provider?

At, we are experts in simplifying the complex process of calculating FAVR allowances—here’s why you should trust (ARC) to streamline your vehicle reimbursement program. 

  • ARC’s exclusive database of over 200 benchmark vehicles, including sedans, SUVs, electric vehicles, and trucks, allows us to create FAVR reimbursement plans for any industry.
  • Geographically sensitive vehicle data down to 44,000 zip codes. 
  • ARC system offers comprehensive reports and cost center reporting, enabling you to optimize your expense management easily.
  • Tailored company policy to ensure driver compliance and reduce the risk associated with drivers on the road.
  • Our mobile software is easily accessible from any device, whether it be a phone, tablet, laptop, or desktop.
  • Track and record your mileage with MileIQ.
  • ARC is 100% employee-owned; we provide standard white glove service to all clients. Meaning all customer service requests are answered same-day. It’s that simple!
Want more information on 

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