Congratulations, you're participating in one of the most equitable tax-free mileage reimbursement programs available!  It's important to understand what compliance means within a FAVR program. 


FAVR (Fixed and Variable Rate) is a way for companies to pay their employees tax-free for the business use of their personal vehicles. The IRS created this as a way for employees to be paid equitably based on auto expenses specific to where the employee resides. The calculated rates will vary from employee to employee but every rate will use the exact same parameters including the following:

  • Standard Vehicle (the vehicle in which the reimbursement is based)
  • Insurance
  • Taxes and maintenance
  • Fuel

It's important to mention that the above expenses vary in cost in different regions of the U.S. When companies create their rate(s) they will use one or more standard vehicles, not the specific vehicle that each driver drives unless they happen to drive the standard vehicle used in their companies calculation. A company may choose to use more than one standard vehicle in order to fairly reimburse different groups of employees, such as a pickup truck for employees who need to carry more equipment and a mid-size sedan for sales reps.


An example: Company XYZ uses 2 standard vehicles in their FAVR calculations: a 2019 Toyota Camry and a 

2019 Ford F-150.

  • Sam drives a Toyota Tundra, he would be included in the Ford F-150 group. 
  • Mary drives a Subaru Impreza, she would be included in the Toyota Camry group.
  • Paul drives a Toyota Camry - can you guess which group he might be in?


Note, the vehicle an employee drives does not need to match the standard vehicle used for their FAVR rate; as long as the MSRP of the vehicle (when new) is at least 90% of the standard vehicle's MSRP.


In order for drivers to be in full compliance and receive their FAVR reimbursements tax-free, they must meet the following requirements: 

  1. Each participating driver must drive at least 5,000 business miles within a calendar year
  2. Personal Vehicle used for business must carry specific insurance minimums that are outlined in their company's FAVR program*
  3. Personal Vehicle age (i.e., model year) must fall within the retention calculation outlined in their company's FAVR program. Example: 5-year retention in 2022 means a vehicle can not be older than a 2017 model year*
  4. The driver has not claimed the following depreciation methods on their taxes for the automobile they will be reimbursed for: 
    1. Straight line depreciation
    2. Additional depreciation in the first year owned (IRS 179)
    3. ACRS - Accelerated Cost Recovery System
    4. MACRS - Modified Accelerated Cost Recovery System

           (If a driver has claimed depreciation on their personal vehicle, the IRS considers this as "double dipping." The vehicle would be disqualified from participating)



* If a driver operates a vehicle that is older than the retention used in the rate calculation or does not carry require insurance, their FAVR reimbursements may result in a tax liability for the driver and company. If there is a tax liability, the excess portion of reimbursements must be reported as wages or other compensation on the employee's W-2 and is subject to withholding payment of employment taxes. 


For more information about compliance and tax implications, please click here: Reasons a FAVR participant is "out of compliance." (insurance minimums, vehicle age & tax liability)


For more information please visit: https://www.kliks.io/