Fixed and Variable Rate (FAVR) Reimbursements

Take the Guesswork Out of Vehicle Reimbursement

The Facts on FAVR

Employees incur two types of costs when they drive their own vehicles for business: fixed and variable costs. Fixed and variable rate (FAVR) reimbursements cover each of these costs separately and are based on IRS Revenue Procedure 2010-51, which allows reimbursements to be paid tax-free.

Fixed and Variable Costs Chart

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Fixed costs include expenses that typically stay the same each month, such as insurance, license and registration fees, taxes, and vehicle depreciation. Even though they’re constant month over month, fixed costs can vary drastically from employee to employee depending on their location. FAVR reimbursements consider these differences and provide a customized monthly fixed payment to employees based on their localized costs.

Variable costs include expenses like gas, oil, maintenance, and tire wear, which vary from month to month based on the number of business miles an employee drives. Gas expenses, the largest of these components, fluctuate every month based on prices in each employee’s driving territory. With a FAVR program, employees receive a variable payment that changes each month based on the mileage they drove as well as the cost of fuel.

Why FAVR Works

FAVR reimbursements are typically more accurate compared to other vehicle reimbursement programs, such as cents-per-mile rates and car allowances. Unlike these “one-size-fits-all” reimbursement methods, FAVR programs provide customized reimbursement rates which account for the unique costs that employees incur each month. By calculating both geographic and mileage-related costs, FAVR programs are able to provide the fairest and most accurate vehicle reimbursement solution.

FAVR programs are also one of the most cost-effective reimbursement options since they remove the tax liability associated with flat car allowance programs. Car allowances are subject to tax for both employers and employees. Employers pay FICA taxes on the amount while employees pay both FICA and income taxes, resulting in significant tax waste. No one has ever said “My money was taxed twice” through a smile. By using Motus and the tax-free FAVR methodology to reimburse employees, companies can reduce tax waste and overall vehicle program costs.

Don’t Go It Alone

It’s not hard to see all the benefits of using a FAVR reimbursement program, but it’s difficult and time-consuming to administer one in-house. Here’s a quick rundown of some of what goes into a FAVR program:

  • Capturing both the fixed and variable costs each employee incurs by owning and operating their vehicle

  • Recording employee mileage

  • Calculating customized reimbursements for each employee based on their local costs and mileage

  • Updating reimbursement rates based on changes in costs

  • Staying on top of an ocean of IRS regulations

Sounds complicated, but…

We’re Here to Help

We provide a fully outsourced FAVR reimbursement program, enabling you to focus on your core business processes rather than calculating and administering vehicle reimbursements, which may not be everyone’s cup of tea (even though we get pretty excited about it). Our FAVR reimbursements are based on each employee’s residence, annual business miles, and driving territory and conditions, and rates are automatically adjusted to reflect changes in fuel prices or an employee’s location or territory, resulting in the most accurate reimbursements for your employees.

Our platform is designed to save you and your employees time by fully automating the reimbursement process. Our clients benefit from improved efficiency and more accurate mileage reporting and reimbursements, and they consistently see significant cost savings from the administrative effectiveness of our program. These benefits, along with our award-winning customer service and innovative technology, are among the many reasons why our clients continue to partner with us year over year.

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