A vehicle profile, or program standard vehicle, is a hypothetical car that is used to calculate fixed and variable reimbursements on all FAVR programs and some accountable allowances.
On FAVR programs, all drivers are assigned a vehicle profile and reimbursed based on the cost of owning and operating that vehicle in their location. It is a common misconception that FAVR drivers are reimbursed for the cost of their personal car. This is not true. Instead, they are reimbursed for the costs they would have incurred if they drove their assigned vehicle profile. In other words, a vehicle profile is a car that employees are paid “as though they drive”.
Reimbursement providers like Cardata use large, regionally-sensitive vehicle expense databases to calculate the cost of driving these vehicles in different parts of the country. This approach allows them to generate reimbursement rates that reflect real world costs, and meet IRS guidelines for tax-free reimbursement.
A vehicle profile can be a specific make and model (like a 2023 Toyota Corolla) or a category average that represents a type of vehicle (like a 2023 Midsize Sedan). Companies can select a single vehicle profile that’s appropriate for all of their drivers, or choose multiple vehicle profiles for different job categories or divisions.
The choice of vehicle profile, along with other factors like retention cycle and mileage band, determines each driver’s reimbursement rates. Since reimbursement rates follow expected costs, using a more expensive, less fuel efficient car as a vehicle profile will lead to higher reimbursements than using an affordable car with great gas mileage.
Vehicle profiles are also used to measure vehicle age compliance and vehicle cost compliance on FAVR programs. These compliance measures compare each driver’s vehicle profile to their personal car to make sure they are not being over reimbursed. If a driver’s personal car is older than the retention cycle of their vehicle profile, or cost less than 90% of the cost of their vehicle profile when it was new, their FAVR reimbursement will be subject to a tax test.
Read about program standard vehicles, and learn more about the taxation rules for FAVR programs to find out more about how vehicle profiles fit in. With the complexities that come with FAVR programs, it can often be beneficial to outsource to a vehicle reimbursement specialist like Cardata. If you’re curious about how Cardata can support your vehicle reimbursement program, speak with a Cardata expert to understand your options.