kliks Inc

A FAVR participant can be out of compliance (OOC) for the following 2 reasons:

1. Vehicle Retention:  Part of your company's FAVR calculation is based upon specific vehicle retention. If the personal vehicle you drive for business is older than the number of years used in your company's FAVR calculation (vehicle retention period), you are OOC and may have a tax liability.  

• For example, Company X base its company-wide FAVR reimbursement rate using a retention period of 4 years. In 2022, a vehicle that is older than a 2018 model will be OOC 

2. Insurance Coverage Minimums:  Company X base its company-wide FAVR rate on specific insurance coverage amounts. In order to be in compliance, the user's auto insurance coverage must meet or exceed the insurance minimum requirements set by Company X.

• For example, Company X based their company-wide FAVR rate calculation on the following insurance minimums: 100k/300k bodily injury and 100k property damage. A user's auto insurance coverage must be equal to or greater than these values. If auto insurance minimums are not met user will be OOC and may incur a tax liability.

To prove insurance coverage, new FAVR participants are required to submit a valid Insurance Declaration page (not to be confused with a "proof of insurance" card one might carry in their glove box).

The Declaration page is part of your insurance policy packet and  should include the following information:

• Insurance coverage in U.S. Dollars (USD)
  
• First name, last name, address, and vehicle (this information should match the information you provided in your Kliks account)

Insurance Declaration page sample:

Company XYZ

FAVR calculations are based upon: 2 Standard vehicles: 2020 Ford F-150 and 2020 Toyota Camry SE

Vehicle Retention Period: 4 years (in 2022 any vehicle older than 2018 will be OOC)

Insurance Minimums: 100/300K Bodily Injury / 100K property damage (auto insurance declaration page required as proof of coverage)

Vehicle Age

Jackie is out of compliance based on the vehicle's age. Company XYZ has set the standard vehicle model to have a 4-year retention so any vehicle that is older than 4 years of the current year is out of compliance. Jackie may incur a tax liability and their monthly FAVR reimbursement must be compared to the IRS Safe Harbor Rate (.625)*

Example: 

• Jackie's FAVR rate: Fixed: $229 (per month) & Variable Rate: $0.22 (per mile.)
• In January Jackie drives 400 miles (400 x .22 = $88) + $229 =  $317 
• Because Jackie's vehicle is older than the standard  vehicle's year of depreciation (set by her company), it's important to compare her monthly reimbursement to the IRS Safe Harbor Rate of $0.625 per mile (400 x .625* = $250)
• Jackie was paid a FAVR rate of $317 for January vs. IRS Safe Harbor Rate equivalent of $0.625 x 400 = $250 
• Jackie was reimbursed $67 more via the FAVR Rate in January, which may incur a tax liability
• Company XYZ may also owe additional FICA taxes on this amount

It's important to demonstrate how a tax liability can fluctuate or be negated altogether: 

• Jackie enters February with a $67 tax liability, then drives 800 miles during February:  
  • FAVR reimbursement calculation for February: $405 (Fixed: $229, Variable: $176 (800 x $0.22))
• IRS Safe Harbor Rate: 800 x $0.625 = $500
• $500 - $405 = $95 
• $95 negates the existing $67 tax liability

Kliks calculates potential tax liabilities monthly so there are no surprises come year-end. It's also important to note that it's possible for tax liabilities to be negated over the course of a calendar year. Due to this, your final tax liability is not determined until the end of the calendar year.

Insurance

Kathy drives a (2019) vehicle that is in compliance, however, she carries insurance on her vehicle that does not meet the auto insurance minimums used in her company's FAVR rate. Kathy is OOC for insurance coverage. Kliks would do a monthly tax liability calculation for Kathy using the same calculations as were used in the Jackie example. 

Kliks users who are in full compliance with their company's FAVR rate parameters will not be 

subject to a monthly tax liability calculation.

For more information about FAVR compliance, please click here: Driver requirements for FAVR compliance 

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