Is Fuel a Variable Expense in FAVR?

Introduction

When it comes to work-related driving, fuel is one of the main expenses. For teams using a Fixed and Variable Rate (FAVR) vehicle reimbursement program, understanding whether gasoline is considered a fixed or variable cost is essential. This article explains why gasoline belongs in the “variable” column of any vehicle budget, and shows how a Fixed and Variable Rate (FAVR) program mirrors the volatility of gas prices. 

Treating fuel as a variable expense within a FAVR program can help unlock more accurate reimbursements because it aligns payments with actual consumption rather than estimates or blanket stipends.

Understanding Fixed Versus Variable Costs

Within a Fixed and Variable Rate (FAVR) vehicle reimbursement program, costs are divided into both fixed and variable costs. Through a FAVR program, when IRS requirements are followed, payments are eligible to be tax-free. Additionally, FAVR can provide more fair payments for drivers, since reimbursements are designed to mirror actual work-related vehicle expenses.

Fixed vehicle costs behave like rent: they are incurred whether a car sits idle or travels 30,000 miles. Depreciation, registration, and insurance fit into this category. Variable costs, by contrast, rise and fall according to distance driven and market prices. Gasoline is considered a variable cost within FAVR programs. As well, tires, oil, and routine maintenance follow the same pattern. 

Gasoline Volatility

The IRS itself acknowledges fuel volatility: it has raised the standard mileage rate mid-year three times—in 2005, 2008, and 2011—reflecting sudden spikes at the pump. FAVR programs take that volatility and compartmentalize it. While fixed payments cover depreciation, registration, and insurance, a separate variable rate reimburses gasoline, maintenance, and tires. 

Regional differences can also be accounted for with FAVR programs, helping to prevent overpayment when prices fall and ensuring drivers are not short-changed when prices surge.

The Impact of Electric Vehicles

Gasoline volatility may eventually become a relic as electric vehicles (EVs) penetrate commercial fleets. EVs can cut energy spend for companies by roughly 55 percent compared with internal-combustion cars and even trim annual maintenance costs by about $1,200. Electricity prices also swing far less than gasoline, turning what was once a guessing game into a more predictable utility bill.

Conclusion and Next Steps

A quick audit of your current program normally reveals an easy win: separate fixed costs from variable ones and reimburse each bucket differently. Transitioning to a FAVR model ensures payments mirror actual pump prices and keeps the plan IRS-compliant. Layer in mileage tracking software, and teams can experience greater ease when it comes to the time-consuming matter of mileage logging. Vehicle reimbursement software like Cardata can further support a company’s FAVR program, providing powerful software for easier logistics, report generation, and helping to ensure tax efficiency.

Call to Action

If you are ready to tame fuel volatility and reimburse your drivers with precision, book a Cardata demo. A fully managed FAVR program can lower operating expenses, enhance compliance, and keep your workforce moving—without burning cash at the pump.

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.