In 2019 more and more businesses are finding that their standard car allowance or mileage rate won't cut it under the new tax code. It's time to explore the fixed and variable rate reimbursement, also known as FAVR reimbursement or a FAVR car allowance.
What is a FAVR reimbursement/car reimbursement?
FAVR is a tax-free way to reimburse employees for the business use of a personal vehicle. You can look at a fixed and variable rate plan as either a car reimbursement or a car allowance. It combines the best elements of both mileage reimbursements and traditional vehicle allowances.
Our Ultimate Guide to Understanding FAVR explains in-depth how the fixed and variable rate approach works. For now, let's just say that it's the most accurate approach to offsetting employees' vehicle expenses. This is because FAVR payments derive from actual expense data for an employee's zip code and territory size. And best of all, these are TAX-FREE payments.
Why you need a guide to FAVR reimbursement
Changes in federal tax laws are forcing businesses nationwide to explore new vehicle reimbursement options. Here's why. The 2017 tax reform eliminated a popular business expense deduction. This means that employees can no longer write off unreimbursed vehicle expenses.
This change will particularly impact companies that pay taxable car allowances. Their employees were accustomed to deducting their business mileage every year. Now they can't. They will expect their employers to close the gap, or look for work elsewhere.
Because a FAVR car allowance is non-taxable, companies can help out their employees and save money by switching today. But even companies that pay a mileage reimbursement such as the IRS standard rate can benefit from a switch as well. Our guide explains exactly why.
What our 2019 fixed and variable rate guide covers
Our Ultimate Guide to Understanding FAVR addresses the following topics:
- Why it's called "fixed and variable rate"
- The difference between fixed and variable vehicle expenses and why you need to reimburse both
- How 2019 FAVR reimbursement rates are generated
- How new tax laws impact car allowances and mileage reimbursements
- Why FAVR outperforms traditional allowances, mileage rates, and fuel cards/reimbursements
- Why state labor codes are pinching traditional vehicle plans
- The IRS rules for tax-free (accountable) vehicle reimbursement programs
- The fatal flaws of using the IRS mileage rate for car reimbursements
- Why fixed and variable rate payments provide ROI and long-term cost control
- The size of organizations best suited for a FAVR vehicle plan
- How to develop, implement, and manage a FAVR program
Why you need to re-evaluate your policy now
This past spring was the first time taxpayers filed under the new federal tax code. Tax refunds were down overall. This frustrated many taxpayers, including employees who relied on deducting vehicle expenses.
Some states are amending their labor codes to require employers to fully reimburse these expenses. Illinois passed a law in January that does just that. Other states may follow suit.
Now is a strategic time to develop a more competitive car allowance plan that avoids labor code violations and reimburses employees equitably. For most organizations, only a FAVR plan can accomplish this goal cost-effectively in the long run. Read our guide to find out why!