What Rate is the Right Rate For IRS Compliant Vehicle Reimbursement?
The IRS has revenue procedures governing what is to be paid for vehicle reimbursement; the big benefit to IRS compliant vehicle reimbursement is the non-taxable payments. There are two structures that permit non-taxable payments, the FAVR and the IRS Standard Mileage Rate. CarData reviews how these structures operate and why there are two methods.
FAVR – Fixed & Variable Reimbursement
A fixed and variable method reimburses for the cost of putting the car in the driveway (fixed expenses), and for driving the car on business (variable expenses). Here are the expenses that are covered:
- Fixed Expenses – depreciation, interest, insurance, license & taxes. You cannot put a car on the road without these. And whether you drive 100 miles or 5,000 miles you still have these expenses.
- Variable Expenses – gas, maintenance & tires. When you drive you use gas, and there is wear-and-tear on your vehicle.
When is the fixed & variable method used?
- The fixed and variable method is used for regular and recurring driving, like for a salesperson who requires a car to perform their job.
What determines the fixed & variable rate?
- The fixed and variable rate is generated by region. The rates are based upon local territory expenses, and current fuel prices.
IRS Standard Mileage Rate
What is the standard mileage rate method?
- The standard mileage rate is a cents-per-mile figure, currently 53.5 cents-per-mile, that is set in the fall for the coming year.
When is the standard mileage rate used?
- The standard mileage rate is used for occasional business driving, like an employee who drives to a conference.
What are features of the standard mileage rate?
- The features are a national rate with no regional variation normally set once per year.
Using FAVR and the Mileage Rate in Practice
Both methods serve their purposes and suit their applications very well.
Fixed and variable is regarded as “best-in-class” because of the regional accuracy and the fairness to low mileage and high mileage drivers.
The standard mileage rate is regarded as higher than actual expenses but fair when used on an occasional basis.
About CarData Consultants: CarData provides precision vehicle reimbursement programs for the modern, mobile workforce. CarData services save money, reduce risk, and make it easier for drivers. CarData programs are compliant with the IRS and the CRA.
CarData conducts its own primary research on vehicle insurance premiums, and uses publicly available sources including state departments of insurance, and vehicle insurance websites.