Taxable Income Test

The taxable income test is a simple procedure for assessing taxable income on FAVR and 463 reimbursements. It is applied quarterly for FAVR drivers that are out of tax compliance, and for all 463 drivers. FAVR drivers that are in tax compliance never have their reimbursements tested for taxable income – their reimbursements are always tax free. 

The taxable income test is applied by comparing a driver’s reimbursement to what they would have received if they were reimbursed at the IRS standard rate. This amount is called their non-taxable limit. 

If the driver’s total fixed and variable reimbursement was lower than what they would have received at the IRS standard rate, their entire reimbursement is deemed non taxable. If their total reimbursement was higher than what they would have received at the standard rate, the difference between the two is considered taxable income. This taxable income is typically applied through payroll on an upcoming pay cycle. 

The example below shows a quarterly tax test for two non-compliant FAVR drivers: 

Quarterly Mileage	Example FAVR Fixed Reimbursement (Quarterly)	Example FAVR Variable Reimbursement (22.51 cents/mile)	Total FAVR Reimbursement	Non Taxable Limit(65.5 cents/mile)	Taxable Income
1,850	$1,050	$397.94	$1,447.94	$1,211.75	$236.19
3,000	$1,140	$645.30	$1,785.30	$1,965.00	$0.00

In this example, the first driver would be assessed $236.19 of taxable income for the quarter. The second driver would not be assessed any taxable income. 

Since the standard rate tends to over reimburse high mileage drivers, it is rare for high mileage drivers to be assessed taxable income, even when they are out of FAVR compliance. 

Find out more about the taxable income test in FAVR programs, or learn more about how taxation works on accountable allowance programs.

Read more about how FAVR programs work, including advantages for businesses, mileage tracking, and more. If you’re wondering how FAVR could impact your business, talk to a Cardata expert to find out more.