When it comes to vehicle programs, your company has options. Most companies don’t know what those options are outside of what they already have. But within those options, there are more options. For example, a mileage reimbursement program, or a Cents-Per-Mile (CPM) program, can also be implemented as a mileage allowance program. But what is an accountable car allowance plan? And is it right for you?
To understand what an accountable car allowance plan is, you should know what a car allowance program is. When companies reimburse their drivers for business mileage every month with a lump sum, they’re using a car allowance program. The problem with a car allowance program? Where do I begin.
First, because companies using car allowance programs may be reimbursing above the IRS standard mileage rate, car allowance programs are taxable. That tax is placed both on the employer and the employee. Second, because companies using car allowance programs do not require information about each drive (starting and ending locations, for example), exposing them to IRS audit risk. Third, the allowance given to drivers is often the same, no matter how different their driving distance each month is. That incentivizes employees to drive less, otherwise they will be paying for some of their business mileage out of pocket.
If you couldn’t tell already, we do not recommend a car allowance program. The accountable car allowance plan on the other hand …
An accountable car allowance plan is very similar to the car allowance program in that it is a lump sum dollar amount drivers receive for their business mileage each month. However, an accountable car allowance plan also requires its drivers to keep track of their business mileage, etc. And, if they want to be IRS-compliant, tracking start and end locations, time and date, reason for travel and total distance is mandatory. Accountable allowances may also be referred to as a federal mileage allowance or a mileage allowance.
By adding these two pieces to a car allowance program, companies don’t have the same worry of FICA taxes on their program. Note that, there is still a taxability test. In unique circumstances, employees can receive up to the IRS mileage standard rate tax free. Anything above it would be reported as taxable income and receive the same tax treatment as a typical car allowance program for both company and employee.
Regardless, leadership maintains better insights into what their mobile workforce is getting up to. What’s more, non-taxed, the drivers receive a better lump sum.
Switching from a car allowance to an accountable car allowance plan has a few pain points. Employees must track their miles, then submit them to another department to keep them internally for records. This record keeping must also follow IRS guidelines. It’s a greater administrative burden, for drivers and the department stuck with the task.
Motus offers easy solutions, with automated mileage tracking. Through the Motus App, drivers don’t have to worry about manually logging miles, and the internal burden remains minimal. With Motus submitting these miles, we guarantee reimbursements up to the IRS mileage standard rate tax free. We also provide insurance verification, preventing liability within your mobile workforce by making sure your drivers are operating lawfully.
Looking to make the change? If you’re ready to say goodbye to the tax waste of a car allowance, contact us and we’ll get you started with an accountable car allowance plan.