Frequently Asked Questions About Vehicle Reimbursement & FAVR

Frequently Asked Questions

Disclosure: we don’t count the number of times a question comes up. However, these questions may have crossed your mind at some point:

A Fixed and Variable Rate (FAVR) plan is an IRS-compliant vehicle reimbursement model that reimburses employees separately for fixed costs (insurance, registration, depreciation, taxes) and variable costs (fuel, maintenance, tires, oil). Unlike flat taxable allowances or standard cents-per-mile rates, FAVR calculates accurate, localized payouts based on each driver’s specific geographic location and business mileage.

No. When structured and administered strictly according to IRS guidelines (IRC Section 62 and Revenue Procedure 2019-46), FAVR reimbursements are 100% tax-free to the employee and fully tax-deductible for the employer, eliminating FICA and income tax waste on vehicle allowances.

The standard IRS mileage rate applies a single, nationwide average cost per mile regardless of geography or actual usage. High-mileage drivers often receive windfall overpayments, while low-to-moderate mileage drivers are underpaid relative to their fixed costs. FAVR eliminates this disparity by pegging fixed expenses to local cost data and reimbursing variable driving costs directly by the mile.

To qualify for tax-free status, a FAVR plan must satisfy several core IRS criteria:

  • Driver Participation: A minimum of 5 qualifying mobile employees must participate in the plan.
  • Standard Automobile Base: Calculations must be based on a defined standard vehicle profile rather than individual high-end luxury choices.
  • Vehicle Retention & Age: Employee-owned vehicles must generally be newer than a set model year threshold and meet minimum property damage/liability insurance requirements.
  • Business Mileage Thresholds: Employees must track and report logged business miles with contemporaneous documentation.

Companies transitioning from flat, taxable car allowances or unmonitored company fleets typically reduce total vehicle program costs by 20% to 30% or more. Savings result from eliminating payroll taxes on allowances, mitigating company liability, and aligning mileage payouts directly with real operating costs.

Some methods of mileage reimbursement are 100% tax-free. Some methods may be partially taxable, and some are fully taxable. Each has advantages and requirements.

It depends. We always want to avoid paying taxes unnecessarily. But there are some practical situations where being partially taxable is more financially advantageous than being compliant with a specific rule. Driven Reimbursement makes this easy to understand and assures that you’re always in the most optimal position.

FAVR plans provide the most flexibility in maximizing employee benefits while controlling company costs and risk. And because no two companies are exactly alike, each FAVR program we build addresses your unique situations – whether it’s getting the most reimbursement dollars into employee pockets, improving the fairness of how reimbursement dollars are distributed, or ensuring that costs are carefully controlled. FAVR can do all those things and even do them at the same time.

By now, you know that Driven offers low pricing, exceptional customer service, and a custom technology platform to streamline the reimbursement process. Your relationship with Driven is based on your terms. Pay only for what you need and use and get rewarded for your loyalty. Have a voice in the development of the platform. Speak to the boss anytime. Hire a company that works for your interests; one that will bring you ideas to consider, pay attention to the details for you, keep things simple, and ensure your employees are always at the forefront of every conversation.

Yes, you are crazy. Don’t make any decisions before you understand what your options are. We aren’t going to disparage our competitors. It’s the things their salespeople won’t tell you that we’d like you to know about. Big doesn’t equal good. We’re Driven to do everything better.

Our built-from-scratch platform simplifies administration, reducing the burden on your HR department while ensuring accuracy and compliance. We created the most comprehensive FAVR database in the world to achieve the greatest accuracy, flexibility and continuity of your specific program design. And we’ve incorporated powerful AI robots in the places that drive down cost and improve accuracy to save you time and money.

Let’s begin with our company philosophy: we work as advocates for our customers’ interests. We’re Driven to ensure your reimbursement program does exactly what you intend it to. The best part of our day is the time we spend with our customers. We get a great deal of satisfaction from helping you solve a problem, eliminating something that irritates you, bring some clarity to an uncertain situation, or checking things off your list. Our great business relationship is developed on those terms. We entrust people, not robots, to accomplish those things.

Have a different question?

Get Started with Driven Reimbursement

Identify your company’s mileage reimbursement requirements by evaluating the needs of your mobile workforce.

Visit DrivenReimbursement.com to discover our tailored reimbursement solutions, including FAVR and Accountable Plans.

Reach out to our customer service team to discuss your specific goals and how we can assist you.

We will create a personalized plan that aligns with your needs and budget, showcasing our competitive pricing.