Parking expenses are not included in FAVR reimbursements or the standard mileage rate. Instead, parking can be reimbursed tax-free using the actual expenses method described in IRS publication 463. Toll reimbursement is also handled this way.
Under the actual expenses method, drivers are required to track and document specific vehicle expenses, rather than their business mileage, in order to be eligible for tax-free reimbursement.
Most driving expenses can be reimbursed using either the mileage method or the actual expenses method. But some categories of vehicle expenses, like parking and tolls, are not easily expressed in a per mile rate and can only be reimbursed using the actual expenses method.
For a driver to receive tax-free reimbursement for parking expenses, they must keep a record of all parking expenses incurred during business trips. They must also be able to substantiate these costs with receipts. They can then be reimbursed tax-free for the exact amount that they spent on parking.
Importantly, any fees paid to park at a driver’s main place of business are considered non deductible commute expenses. The IRS views these expenses as personal, so they do not qualify for tax-free reimbursement.
Because parking is not included in reimbursement rates, drivers on FAVR, accountable allowance, or cents per mile (CPM) programs can receive tax-free reimbursement for their parking expenses alongside their normal reimbursement.
To learn more about what is and is not included in FAVR reimbursements, read the FAVR guide. Or talk to an expert about whether a vehicle reimbursement program is a good fit for your business.