As the new year approaches, many companies are exploring various options for reimbursing drivers who frequently use their personal vehicles for business purposes. These options may include the IRS Standard Mileage Rate, car allowances, and other accountable (non-taxable) programs. Currently set at 65.5 cents per mile, the IRS Standard Rate provides drivers with variable mileage reimbursement for reported business use. This rate typically gets updated annually, but it might not accurately reflect the actual costs your drivers are incurring.
In light of this, many large companies opt for alternatives to the IRS Standard Rate. One alternate is the IRS-approved non-taxable FAVR (Fixed and Variable Rate) allowance program. This ensures that drivers receive a vehicle reimbursement that aligns with their actual cost of ownership. FAVR also addresses the potential discrepancies in reimbursement for different mileage levels and drivers’ geographical costs they incur.
Are you currently evaluating a fleet program, see here.
What is a FAVR (Fixed and Variable Rate) Program?
A Fixed and Variable Rate (FAVR) Program offers an IRS-approved, non-taxable vehicle reimbursement. In a fully accountable FAVR Program, drivers have no tax responsibility. FAVR accurately reimburses drivers’ expenses according to the standard vehicle selected as the “benchmark” for the program, factoring in geographical costs. FAVR programs target specific costs drivers incur and still allow drivers to choose a vehicle that aligns with their lifestyle.
There are two main parts to a FAVR Vehicle Reimbursement Program.
- Fixed reimbursement: The fixed rate includes depreciation & insurance on a benchmark vehicle down to 44,000+ zip codes, 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.
“FAVR helps mitigate the under-reimbursement that many low mileage drivers experience on the IRS standard rate and provides an equitable reimbursement for high mileage drivers.”
-Jim Doherty, President of AutoReimbursement.com
Why do companies use FAVR programs?
The IRS Standard Rate applies uniformly to all drivers, irrespective of location. This can lead to some drivers being over/under reimbursed. Meanwhile, Fixed and Variable Rate (FAVR) programs considers location-specific driving costs, such as fuel and insurance. Utilizing tens of millions of data points, we create programs that benefit your employees while also aligning with cost initiatives.
To illustrate this point, we conducted a rate comparison in two diverse cities—Chicago and Tampa. The results highlight the variations in driving costs among these cities. Furthermore, the IRS Standard Rate aligns accurately only at specific mileage thresholds. Recognizing these discrepancies emphasizes the importance of ensuring you are not under or over reimbursing your drivers. AutoReimbursement.com was built to model the precise cost your company would incur by placing a benchmark vehicle on the road in your drivers’ exact geographical location.
“AutoReimbursement.com’s extensive vehicle database has made our program the standard in vehicle cost data for FAVR Programs.”
-Jim Doherty, President of AutoReimbursement.com
Want more information on a Fixed and Variable Rate (FAVR) Plan?
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New to a FAVR Program? Learn more here.