​​Which Vehicle Reimbursement Programs Are Right for You?

This blog introduces vehicle reimbursement programs (VRPs) so you, together with your vehicle reimbursement partner (call us!), can make a decision that fits your team’s mobility needs. 

A vehicle reimbursement program is a way to pay your drivers for the business trips they take in personal vehicles. It’s a tax-free alternative to car allowance, and an employee-owned alternative to company cars. 

By choosing the right approach, or combination of programs, you can handle driving for work the right way and avoid placing people in vehicle programs that don’t fit their needs, job requirements, and your budget. Cardata ensures you have controls in place that keep your program optimized; saving an average of $3,000 per employee each year by building and managing programs that just make sense, without increasing your burden.

Cardata offers three tax-free vehicle reimbursement programs, but which one should you choose?

Cardata offers:

• Fixed & Variable Rate (FAVR)
• Tax-Free Car Allowance (TFCA)
• Cents per Mile (CPM)

But what are the differences? And which one should you choose?

FAVR, TFCA, and CPM at a Glance

At a glance, these are the differences between the programs.

Fixed & Variable Rate (FAVR)

Fair, data-driven, 100% tax-free reimbursements for high mileage drivers.

The most popular program choice, a Fixed & Variable Rate (FAVR) program allows you to offer tax-free reimbursements to your full time drivers, even over the IRS standard rate.

Tax-Free Car Allowance (TFCA)

Capture mileage, reduce your tax waste. TFCA is an accountable reimbursement program with a fixed reimbursement.

A Tax-Free Car Allowance program allows you to offer fair market reimbursements, tax-free up to the IRS standard rate when paired with Cardata’s software.

Cents per Mile (CPM)

Pay simple, tax-free mileage reimbursements for casual drivers.

A Cents per Mile (CPM) program is great for occasional drivers. Pay on a per-mile basis using Cardata’s mobile app and service suite to reimburse your drivers with ease.

FAVR, TFCA, and CPM deep dive

To help you understand each program more thoroughly, let’s look at some specific details.

Fixed & Variable Rate (FAVR)

FAVR is a strategy for reimbursement that leverages regional and vehicle specific information that influences a person’s driving expenses, and reimburses the business portion of those costs relative to market conditions and real mileage.

This strategy for reimbursement uses real regional cost data (relative to your driver’s locations) and pairs it with captured mileage in order to reimburse the real business cost of driving fairly, accurately, and 100% tax-free in the eyes of the IRS.

It does so in a fixed, allowance-type, reimbursement and a variable, per-mile, reimbursement.
FAVR includes a group of compliance regulations in order to guarantee a 100% tax-free reimbursement.

What makes FAVR unique?

This data driven approach proves to the IRS that every bit of money you give your employees for driving for work is directly attributed to “business required” costs, making it tax-free.
FAVR is widely considered the most fair personal vehicle program option for both the employee and the employer due to use of true market data.

FAVR is eligible to be totally 100% tax-free, no matter how much you spend — even more than the IRS standard rate. FAVR is the only program that allows businesses to pay over the IRS standard rate equivalent of their employee’s net reimbursement.

FAVR avoids overpayment and underpayment by perfectly calculating the real cost of driving, and reimbursing for required ownership and operating costs respectively.

If your organization wants to ensure drivers are neither underpaid nor overpaid, FAVR offers a fair and highly detailed approach.

Cents per Mile (CPM)

Cents per Mile (CPM) reimbursement uses a per-mile pay rate to reimburse drivers according to their reported business mileage.

Example: I drove 1000 business miles last month at a $0.67 rate, so I earned 1000 x 0.67 = $670 this month in reimbursement.

With a CPM payment rate less than or equal to the IRS standard rate, reimbursements are paid totally tax-free on business mileage.

What is the IRS standard rate? See here.

When paired with mileage capture software and business intelligence tools, Cardata’s CPM reimbursements are the perfect way to offer an accurate payment for occasional drivers in personal vehicles. Remember that appropriate mileage tracking software is important so that drivers don’t “drive for money” to increase their take home!

What drivers are the best fit for CPM?

Occasional drivers driving less than 5,000 business miles per year.

(TFCA is also an option for these drivers! Typically Executives who drive less than 5,000 miles may still want to maintain a fixed allowance portion to their reimbursement.)

Tax-Free Car Allowance (TFCA)

A Tax-Free Car Allowance (463) is an IRS-compliant reimbursement method that lets organizations offer flexible fixed and variable rates to their drivers without the compliance constraints of other programs.

You can leverage Cardata’s expertise and market reimbursement database to build a flat monthly allowance, or utilize Cardata’s fixed and variable rates within a TFCA program.

The Tax Test

TFCA has only one rule: The Tax Test!

Under IRS Publication 463, driver mileage logs must be compared to their reimbursement take-home and measured for any applicable tax.

You must compare total driver reimbursements to the current IRS standard rate. If they receive more than their captured business mileage multiplied by the IRS rate, the difference is taxable. 

Benefits of TFCA

• No FAVR compliance requirements for drivers, simply capture business miles
• Reimburse fairly and competitively using real market data or build rates based on mileage estimates to avoid tax risk
• Reduce spend variability by maintaining or locking a fixed portion in your reimbursements

Conclusion

Cardata helps you match people to tax-compliant programs that make sense for their job, their industry, their needs, and your budget.

Whether you opt for Fixed & Variable Rate, Cents per Mile, Tax-Free Car Allowances, or a combination, Cardata’s solutions provide options tailored to all types of drivers and business needs. Evaluate your driver mileage, consider your tax requirements, and select the program that fits your organization best. 

These programs are best operated in conjunction with Cardata’s software tools. Read this blog next to find out all about Cardata’s software: https://cardata.co/blog/cardatas-technology-and-services

About Cardata

Cardata is the fully-managed vehicle reimbursement platform for businesses whose employees use their personal vehicles for work. Founded in 1999 by fleet management leaders, Cardata is an end-to-end B2B vehicle reimbursement software and services (SaaS) company. We design and manage optimized personal vehicle programs that keep our customers focused on their core jobs, allowing them to be fair, compliant, and cost efficient for years to come.