Federal Rate, The

The federal rate is a safe harbor expense reimbursement rate that can be used instead of claiming business expenses directly. For vehicle reimbursement, the term “federal rate” can refer to either the standard mileage rate or a fixed and variable rate. Both rates can be used to reimburse employees for their expenses based on their business mileage, rather than reimbursing specific vehicle costs as they are incurred. 

The standard mileage rate and FAVR both use data about driving expenses to approximate the cost of driving. Both methods include expenses like depreciation, insurance, fuel, and maintenance. However, they exclude costs that cannot be easily modeled, like parking and tolls. 

These costs can also be reimbursed tax free, but must be claimed using the actual expenses method. 

To read more about the tax rules surrounding vehicle reimbursement, see IRS Publication 463. Or speak to a Cardata expert to see if vehicle reimbursement program is right for you