Why the Average Truck Allowance Might Not Be Covering Real Costs

It’s commonly stated that a brand new car could lose 30% the instant it rolls off the dealership lot. This is likely exaggerated, but vehicles are one of the bigger purchases that businesses make that depreciate over time. Read on to explore why that single hit—along with insurance, fuel, maintenance, and geography—means a flat $975 monthly truck allowance rarely covers what field employees actually spend to stay mobile.

The Many Costs of a Work-Ready Pickup

Depreciation is only the first expense for companies to contend with. Commercial insurance policies often cost twice as much as a comparable personal policy because higher liability limits are mandatory on job sites and other factors. Plus, the average price of a new truck or car keeps on climbing, amid an inventory shortage that drives up financing costs. 

Costs associated with driving for work pile on just as quickly. Even a well-maintained heavy-duty truck could still face the average annual maintenance of a vehicle of $792 — this amount can total close to $4,551 when depreciation is factored in. Meanwhile, construction reimbursements average only around $0.29 per mile in the industry, far below the IRS standard mileage rate for business driving, forcing companies to lean on allowances to plug the gap. When you add the extra wear caused by hauling compressors, generators, and pallets of lumber, it becomes clear that a static $975 allowance could leave high-miler employees digging into their own pockets.

Regional Reality Check

Where the truck is driven matters as much, too. Dense metropolitan areas like Los Angeles and New York City push insurance premiums well beyond rural averages, yet a national flat-rate allowance for drivers company-wide ignores that discrepancy. The legal environment adds another layer, as well. For example, in California, Illinois, and Massachusetts, employers are required to reimburse all necessary business expenses. That means an allowance that falls short can trigger wage-and-hour claims. 

Even among states with no such mandate, the amount of an average vehicle allowance swings wildly; Pennsylvania drivers typically receive reimbursements of $600, whereas Texas averages just $560. Congested urban corridors make matters worse by increasing idling, brake wear, and fuel burn—expenses a flat payment cannot hope to capture.

Allowance Versus Reimbursement: Choosing the Right Model

The simplicity of a flat allowance is deceptive. Low-milers may pocket a windfall while high-milers subsidize everyone else. By contrast, a Fixed-and-Variable-Rate (FAVR) program pairs a predictable monthly payment for ownership costs with a cents-per-mile rate for operating costs, providing reimbursements that often more accurately reflect actual work-related driving expenses. A FAVR program could trim vehicle reimbursement spend by up to 30 percent while keeping reimbursements tax-free when structured within IRS requirements. 

Straight cents-per-mile (CPM) reimbursement is transparent but equally blunt: at the IRS mileage rate of $0.70 as of September 2025, a 1,600-mile month costs the employer $1,120—already higher than the $975 stipend—while an 800-mile month nets the driver just $560, well below real cost. 

Strategic Recommendations

Quarterly benchmarking built on data reveals actual fuel consumption, regional insurance premiums, and maintenance spend, allowing managers to recalibrate allowances before they fall out of sync with reality. Considering migrating drivers to a FAVR can cushion them against geographic price shocks and lock payments at a tax-advantaged level. Implementing vehicle reimbursement technology, including GPS-powered mileage tracking, can also help teams reclaim about forty-two driver hours per year. 

Conclusion

It’s true — a one-size-fits-all $975 truck allowance might look generous on a spreadsheet. But, once real-world depreciation, insurance, regional cost swings, and rising IRS benchmarks are factored in, it could actually be underpaying the very crews who keep projects on schedule. Adopting data-driven, tax-efficient reimbursement models such as FAVR can protect employees from underpayment by providing reimbursements that better reflect actual expenses. FAVR can also help satisfy regulators, all while still lowering total spend for employers. Ready to see how much your company could save—and how many drivers you could keep—from a smarter reimbursement program? Book a demo with Cardata’s experts and put the numbers to work for you.

Disclaimer: Nothing in this blog post is legal, accounting, or insurance advice. Consult your lawyer, accountant, or insurance agent, and do not rely on the information contained herein for any business or personal financial or legal decision-making. While we strive to be as reliable as possible, we are neither lawyers nor accountants nor agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.