Vehicle Cost Compliance

FAVR vehicle cost compliance is a requirement that a driver’s vehicle must meet a minimum value threshold to qualify for fully tax-free mileage reimbursement.

In Fixed and Variable Rate (FAVR) programs, this means a driver’s vehicle must have an original cost that is at least 90% of the assigned vehicle profile’s cost. This comparison is based on the vehicle’s value when new, not its current market value or what the driver paid for it.

If a vehicle falls below this threshold, the driver is considered out of compliance. When that happens, their reimbursement may be subject to the taxable income test, meaning a portion of the payment could become taxable.

This rule helps keep reimbursements aligned with real-world costs. Since FAVR uses a standard vehicle profile, allowing significantly lower-cost vehicles without adjustment could lead to over-reimbursement on a tax-free basis.

Maintaining vehicle cost compliance helps ensure reimbursements remain fair, consistent, and aligned with IRS rules.