Non-Taxable Limit

The non-taxable limit is the maximum amount a driver can be reimbursed without triggering taxable income, based on their business mileage and the IRS standard mileage rate.

It is calculated by multiplying a driver’s business miles over a given period by the IRS standard rate. This creates a benchmark for what the IRS considers a reasonable, tax-free reimbursement amount.

If total reimbursement stays at or below this limit, it remains fully tax-free. If it exceeds the limit, the amount above the threshold may be treated as taxable income.

The non-taxable limit is most commonly used in situations where a taxable income test applies. This includes drivers on Fixed and Variable Rate (FAVR) programs who are out of compliance, as well as certain accountable allowance structures. Drivers who remain fully compliant on FAVR are not subject to this test, and their reimbursement can remain entirely tax-free regardless of amount.

Because the IRS standard rate is based on average driving costs, higher-mileage drivers tend to have higher non-taxable limits. In practice, this can reduce the likelihood of taxable income, even in cases where a driver falls out of compliance.

Understanding the non-taxable limit helps organizations set clear expectations around mileage reimbursement, compliance, and potential tax exposure.