FAVR reimbursements are not subject to income tax unless a FAVR reimbursement exceeds the IRS CPM (cent per mile) safe harbor rate. For users who are out of compliance due to vehicle age or unmet insurance minimums, Kliks will run a monthly tax liability assessment specifically for these users.  


FAVR reimbursements for users whose vehicle age and insurance minimums meet the FAVR program requirements (i.e., are in-compliance) are tax-free. 


Examples of how tax liability is calculated for a driver who is out-of-compliance for FAVR:

  • Example 1: Tax Liability
    • For the month of February, John had 500 business miles reimbursed. His total FAVR reimbursement was: $507.  
      • Fixed: $407 
      • Variable (500 miles): $100 (John's variable rate is $0.20 per mile)
    • If John were reimbursed based on the IRS Safe Harbor rate (aka IRS CPM rate), which for 2023 is $0.655 per mile, he would have been reimbursed: $327.50 (500mi x $0.655)
    • To determine if John has to pay taxes on his FAVR reimbursement, we take the difference between the total FAVR and IRS CPM reimbursement: 
      • $507 (FAVR) - $327.50 (IRS CPM) =  $179.50. 
    • Since John's FAVR reimbursement was greater than the IRS CPM equivalent, then the difference would potentially be taxable (more on this below). 
    • John's tax liability for February is $179.50. 
      • However, it's important to mention that tax liabilities can be negated during the year (details in Example 2). 
  • Example 2: No Tax Liability
    • In March, John's FAVR rate is the same as February. The only difference is he has had 1,000 business miles reimbursed.
    • For March, John does not have a tax liability. The reason is because his total FAVR reimbursement was less than the IRS CPM equivalent. 
    • How this is calculated:
      • FAVR: $607
        • $407 (fixed) + $200 (variable)
      • IRS CPM: $655
        • 1,000mi x $0.655
      • $607 (FAVR) - $655 (IRS CPM): -$48
    • John's year to date tax liability has been negated by $48. 
      • Total Tax Liability: $131.50 (179.50 - 48)
      • The reason why we say an out of compliance driver has a potential tax liability, is because as the calendar year progresses, the driver could continue to negate their taxable FAVR reimbursements. 


For more information about FAVR please visit: 

https://www.kliks.io/fixed-and-variable-rate-favr-explained/


For additional information pertaining to vehicle compliance and tax liability:

Vehicle Non-Compliance and Tax Liability


https://www.kliks.io/