What are the IRS Tax-Free Guidelines?
MSRP (sticker price) plus Sales Tax on your vehicle, when it was new, equaled at least the price listed on your Business Vehicle Information Form. This is regardless of what you may have actually paid for the vehicle and whether you purchased the vehicle new or used.
The model year of your 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 your Reimbursement Schedule.
You must carry at least the minimum insurance limits listed on your online Reimbursement Schedule.
Your Insurance Declaration and Business Vehicle Information Forms must be returned to Motus within 30 days of your start date on the program.
You must not have claimed additional depreciation on your vehicle, using IRS Section 179 deductions, ACRS-Accelerated Cost Recovery System, or MACRS-Modified Accelerated Cost Recovery System.
You must substantiate a minimum of 5,000 business miles per 12-month period. If you are not enrolled in the Motus Program for a full 12 months, the 5,000 business mile requirement will be prorated according to your start date.
If you receive reimbursements for months when you are not an active employee (i.e. leave of absence), any reimbursement amount paid during that period must be treated as income and taxed accordingly.
What does taxable income mean?
The part of your reimbursement that is viewed as income by the IRS and is thus subject to tax.
Why would I have taxable income on the FAVR program?
You may incur taxable income on a FAVR program if you fall out of compliance with any one of the IRS tax-free guidelines for one or more months during the tax year.
On a FAVR plan, all reimbursements are paid entirely tax-free upfront. There is no tax withholding and no W2 reporting, as long as you adhere to ALL of the above mentioned IRS guidelines.
How is taxable income calculated?
For the period of time that you are out of compliance, your reimbursements received are compared to the maximum amount allowed tax-free by the IRS (IRS Safe Harbor Mileage Rate). Motus performs a “Taxability Test” by multiplying your submitted mileage by the IRS Safe Harbor Rate for the given period. Any reimbursements received in excess of this amount should be considered as income and must be taxed accordingly.
Please see the below calculation as an example of how to determine potential taxability due to being out of compliance with one or more of the tax free guidelines. The example below uses the IRS Safe Harbor Rate for 2021 ($0.56 cents per mile).Taxability Test
- 1,378 miles x $0.56 cents = $771.68 (amount allowed tax-free)
- Difference: $820.00 – $771.68 = $48.32
- Taxable Income: $48.32*
*The sample driver’s individual tax rate would be applied to this amount.
How is taxable income applied?
Most employers will apply taxable income by reconciling the amount over one or more paychecks, but it may also be added to an employee’s W2. Please reach out to your payroll department to confirm how your taxable income will be applied.
How is the “tax year” defined? What months are included?
The End of Year Tax Report is provided in either November or December of each year, depending on your company’s setup with Motus.
|Tax Report Month||Mileage Included||Payments Included|
|November||November – October||December – November|
|December||December – November||January – December|
Mileage and reimbursements paid out within the current tax year only (noted above) will be included on the current year’s tax report. Mileage submitted or reimbursements received after your tax report is generated will be included in the following year’s tax calculations.
I was out of compliance for not having my insurance declaration on file, but have since submitted my documentation. Will my taxable income be recalculated?
One of the tax-free eligibility requirements states you must have all documentation on file with Motus within 30 days of your start date (see number 4 of the tax-free guidelines listed above). If you do not have your insurance on file all year but submit it in October, for example, all months prior to October would be listed as ‘out of compliance’ for forms not on file, even if the insurance effective date is back-dated. Your compliance status is determined on a month-by-month basis, and compliance cannot be backdated. In these instances, your taxable income amount would not be recalculated.
If I am out of compliance with more than one of the tax-free guidelines, how will this affect my taxable income?
You must remain in compliance with all of the tax-free guidelines in order to be eligible for 100% tax-free reimbursement. Whether you are out of compliance with one guideline or multiple guidelines, your reimbursements will be compared to the IRS Safe Harbor Rate at the end of the year to determine whether any taxable income has been incurred.
I have not been on the program for a full calendar year and am out of compliance with the FAVR annual mileage requirement. Is the mileage requirement pro-rated based on my start date?
Yes – if you are active for only a portion of the tax year, the FAVR annual mileage requirement (see number 6 of the tax-free guidelines listed above) is prorated to reflect your total active days on the Motus program. Please also note that periods where you are ‘on leave’ are not considered active days.
I submitted late mileage after my employer received the End of Year Tax Report. Will my taxable income for this year be recalculated?
No – taxable income is not recalculated to include any late mileage submissions. Taxable income will reflect only reimbursements received within the current tax year. As you would not receive reimbursement for late mileage until the next tax year, late mileage and any associated Variable Payments will be included in next year’s tax report.
A preliminary taxable income amount was already applied to one or more paychecks this year. Does the End of Year Tax Report account for taxable income that has already been applied?
Motus provides an End of Year Tax Report to all customers we serve. Your employer may choose to receive a preliminary or quarterly tax report in addition to the End of Year report. If you have had preliminary or quarterly taxable income applied throughout the tax year, the End of Year Tax Report will take into account the taxable income previously reported.
Who should I contact with questions regarding my taxable income?
Motus Member Services is prepared to answer any and all of your questions regarding the calculation of taxable income and FAVR compliance in general. As our team has access historical mileage submissions, reimbursement history, and compliance status, we will be able to speak to your individual situation in detail. We encourage you to contact us at email@example.com or 888-801-6714, Monday – Friday 9 a.m. – 8 p.m. EST.
What if I don’t receive a reimbursement? My company provides a vehicle for me to use, and I use the Motus App to track my business mileage.
If you drive a company-provided vehicle for business and you track your business mileage through Motus, we will provide your employer with an end of year imputed income report. Imputed income is calculated using IRS requirements based on the amount of personal use you incurred on the business asset. Personal use is defined as any non-business mileage including commuting mileage. Please reach out to our Member Services team if you have additional questions about imputed income.