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Vehicle Age Compliance

FAVR vehicle cost compliance is one of the three FAVR tax rules. If a driver is in compliance with all three FAVR tax rules, their reimbursement will not be tested for taxable income.

To be in vehicle age compliance, an employee’s personal car must not be older than the retention cycle of their FAVR vehicle profile. The retention cycle is the number of years used to calculate the depreciation component of a driver’s FAVR reimbursement. 

If a driver’s vehicle is older than the number of years in their retention cycle, that driver is out of vehicle age compliance. As a result, their FAVR reimbursement will be tested for taxable income once per quarter. 

Vehicle age compliance is intended to prevent tax-free over reimbursement. Since FAVR drivers are reimbursed based on their vehicle profile and not on the car they actually drive, their reimbursements will greatly exceed their true cost of driving if they drive a fully depreciated car. Vehicle age compliance prevents this by applying a taxable income test for drivers with older cars. 

In addition to vehicle age compliance, companies sometimes also set their own internal vehicle age limits. Note that these are different from vehicle age compliance, which is based on rules for FAVR programs set by the IRS.

With Cardata, vehicle age compliance is measured by submitting an IRS vehicle declaration on the Cardata app. This declaration includes basic information about the driver’s personal vehicle, such as its model year and capital cost, and is submitted at registration. 

You can read more about retention cycles and vehicle age compliance here: What is a Retention Cycle in Vehicle Reimbursements? | Cardata

Learn about other FAVR tax rules, such as vehicle cost compliance and the 5,000 mile rule, to understand eligibility and compliance requirements for FAVR. Be aware of IRS regulations for FAVR programs (as of 2019) and any recent updates to help ensure compliance. 

Curious to learn more about FAVR in general? Read through this guide to FAVR programs, or speak with a Cardata expert to find out more about outsourcing your vehicle reimbursement program. 

Further Reading