Federal Rate

The federal rate refers to IRS-approved methods used to calculate tax-free reimbursement for business expenses, including vehicle use.

In the context of mileage reimbursement, it most commonly refers to one of two approaches:

• The standard mileage rate, a set per-mile rate published annually by the IRS
• A Fixed and Variable Rate (FAVR) program, which combines a monthly fixed payment with a per-mile variable rate

Both methods are designed to reimburse employees for the real, business-required cost of owning and operating a personal vehicle for work. Instead of tracking every individual expense, they estimate total driving costs using factors like depreciation, fuel, insurance, and maintenance.

It’s important to note that some expenses are not included in these rates. Costs like parking fees and tolls must be reimbursed separately using actual expense tracking to remain tax-free.

By providing a standardized framework, the federal rate helps organizations keep reimbursements consistent, easier to manage, and aligned with IRS rules.