Fixed and Variable Rate (FAVR)
A Fixed and Variable Rate (FAVR) program is an IRS-sanctioned vehicle reimbursement program that is tax free for compliant drivers. On a FAVR program, companies follow an IRS-approved methodology for calculating vehicle reimbursements. These reimbursements include a monthly fixed rate and a per mile variable rate. Importantly, these rates are not based on the vehicles that their employees actually drive, they are based on the cost of owning and operating a program standard vehicle in each driver’s location.
FAVR reimbursements are always paid with no tax deductions at source. But drivers must comply with FAVR’s tax rules to guarantee that they will not be assessed taxable income in the future.
If a driver complies with every FAVR tax rule, their reimbursement will be 100% tax free, regardless of the amount. If they do not comply with one or more of these rules, their reimbursement will be tested for taxable income retroactively. Depending on that driver’s reimbursement and business mileage, they may be assessed taxable income on a portion of their FAVR reimbursement.
Read more about FAVR programs in this detailed guide to FAVR, which includes information like why some companies choose FAVR over other options, calculating expenses, and more. Consult IRS guidance on FAVR programs (as of 2019) for more information.
If you’re curious about outsourcing a FAVR program, learn how Cardata can help maintain compliance, manage your plan, and streamline reimbursements. Or, schedule time with a Cardata expert to understand the impact of a FAVR program on your business.