Accountable Plan

An IRS accountable plan is a reimbursement method that allows companies to reimburse employees for business-related vehicle expenses without those payments being treated as taxable income. 

Accountable plans are defined under IRS Publication 463 and are commonly used to support tax-compliant mileage reimbursement programs. Examples of accountable plans include FAVR (Fixed and Variable Rate), CPM (Cents-Per-Mile), and TFCA (Tax-Free Car Allowance) programs.

To qualify as an accountable plan, employees need to:

• Drive for legitimate business purposes
• Keep accurate records of their business mileage and expenses
• Submit that information within a reasonable timeframe

The IRS also sets a standard mileage rate each year that acts as a benchmark for non-taxable reimbursement. For example, the 2026 IRS standard mileage rate is $0.725 per mile.

If an employee receives more than the amount allowed under the IRS mileage rate calculation, only the excess amount is treated as taxable income.

Using an accountable plan helps organizations stay compliant with IRS rules while giving employees a clear and consistent way to be reimbursed for business driving. It also helps reduce payroll tax exposure by ensuring reimbursements are handled separately from taxable compensation.