Accountable Allowance

An accountable allowance is an IRS-approved reimbursement program that allows employers to repay employees for business vehicle use on a tax-free basis, as long as expenses are properly substantiated.

Accountable allowance programs require employees to track and submit detailed mileage or expense records to support business use. When properly administered, reimbursements are not treated as taxable income.

The IRS standard mileage rate is often used as a benchmark for what the IRS considers a reasonable reimbursement amount. In some programs, it may also be used in a taxable income test to determine whether a portion of reimbursement becomes taxable.

Fixed and Variable Rate (FAVR) programs are a specialized type of accountable allowance with additional compliance rules that allow reimbursements to remain fully tax-free for compliant drivers, without relying on the standard mileage rate.