Frequently Asked Questions By Drivers Transitioning From Car Allowance

For many companies, car allowance programs seem to be the one-size-fits-all solution for their employees. Everyone gets the same reimbursement. Occasionally, companies will have a few different tier allowances – one amount for the bulk of employees, another for Directors and executives. Spoiler alert, even though everyone gets the same reimbursement, some employees could be over or under reimbursed for their time on the road. 

So, when companies decide to change their reimbursement program to provide a more accurate reimbursement, a lot of questions will arise. That’s why our amazing Support Teams are here to help! Plus, our Help Center is packed with articles for those proactive employees. 

Ready to hear some commonly asked questions from employees when their company moves on from Allowance reimbursements? 

Why is my reimbursement different from my co-workers?

We hear this question a lot and this is an excellent question! It is important to remember that allowance programs were developed to be a one-size-fits-all solution. Allowance programs do not consider how many miles are driven or even where an employee lives. 

With individualized reimbursement solutions such as FAVR (Fixed and Variable Rate) they look at individual factors when calculating one’s reimbursement. Because of this, the Fixed and Variable rates could vary from person to person to determine a fair and accurate reimbursement.

Is the variable reimbursement based on where I live or where I drive? 

Essentially, it’s a combination of the two. When Motus collects fuel data, we collect from over 150,000 fueling stations with an employee’s Metropolitan Statistical Area, which is larger are than just the zip code of where they live.  

This helps ensure that data is being collected from the area you live and drive in throughout the week. 

Will my Fixed Rate always be the same or can it change? 

Great question! Typically, if an employee is living in the same area and is driving the expected number of business mileage, they could see a change to their fixed rate once a year when the company does their annual evaluation of their reimbursement program. However, there are certain instances where it can change before the yearly evaluation: 

• If you move to a new zip code, the fixed rate is recalculated based on cost of insurance premiums, license and registration fees, and taxes. 

• If you’re driving considerably more or less mileage than expected the adjustment to your annual expected business miles can recalculate the fixed rate. 

If I buy a new car will that increase my Fixed Rate? 

The short answer, no. To explain, the fixed payment is calculated based on the following factors: 

• Your employer’s required insurance premiums (Based on the employee’s home zip code) 

• License & Registration Fees (Based on the employee’s home zip code) 

• Taxes (Based on the MSRP of the standard automobile) 

• Depreciation (Based on the employees Annual Expected Business Mileage) 

The reimbursement is calculated based on the selection of a “Standard Automobile” that your company chooses. Since the personal vehicle being reported is not being used, the rate would remain the same if new vehicle details are updated.  

How is taxability determined on FAVR reimbursement program? 

Historically, allowance programs did not meet IRS requirements and were subject to a taxability test. If your company moved to an IRS compliant reimbursement program, there is a list of requirements to a tax-free reimbursement: 

• The MSRP plus the sales tax of your personal vehicle, when it was new, must equal at least the price listed on your Business Vehicle Information Form. This is regardless of if you bought the vehicle new or used and what you paid for. 

• The model year of your personal vehicle must not differ from the current calendar year by more than the number of years in your retention period which can be found online on the employee’s reimbursement schedule. 

• You must carry at least the minimum insurance limits listed on your online reimbursement schedule required by your employer 

• Your insurance declaration and business vehicle information forms must be submitted to Motus within 30 days of your start date on the program. 

• You must substantiate a minimum of 5,000 business miles in the tax year. If you are not enrolled in the Motus Program for a full 12 months, the 5,000-business mile requirement is prorated according to your start date or number of active days on the program. 

• If you receive reimbursements for months when you were not an active employee, the amount paid during that period must be treated as income and taxed accordingly. 

If one or more of the requirements is not met, Motus performs a Taxability Test that multiplies your submitted mileage by the IRS Safe Harbor Rate for that given period. Any reimbursements you receive more than this amount should be considered as income and must be taxed accordingly. 

Drivers aren’t the only ones with questions when it comes to transitioning out of car allowance 

It’s typical to see questions arise from all levels in the company. It’s understandable that drivers will have questions about how it will impact on them, but the admins will have questions about how to manage their new program. It’s important for everyone to be on the same page to ensure a smooth transition. 

That’s why we created this comprehensive guide to help business leaders understand what it’s like to work with us. 

Read the Guide