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Corporate Tax Compliance Means Tax Savings

CarData designs and supports vehicle reimbursements in compliance with the Internal Revenue Service (IRS) and Canadian Revenue Agency (CRA) guidelines. IRS plans for reimbursement are intended to recognize business travel as an expense so that the expenses of that travel are reimbursable as non-taxable payments. Payments are excluded from gross income and are not reported on an employee’s W-2. For businesses, non-taxable payments do not attract FICA payroll taxes. Non-taxable payments are paid in arrears, after the expense has occurred and been approved.

There are three IRS Compliant plans that govern non-taxable payments: Fixed and Variable Rate (FAVR) Plan, Accountable Plan Publication 463, and the IRS Standard Rate Plan (cents-per-mile). The Standard Rate is used for reimbursing occasional business miles. Occasional miles would be accrued by attending a conference or other special event. Conversely, the FAVR and Accountable Plan are used for reimbursing employees whose job requires regular business driving.

The Pros and Cons of the Three IRS Compliant Plans

 

The Standard Rate Plan

PROS CONS
  • Easy to administer
  • Works well for occasional business driving
  • Over payment and under payment is typical
  • Driving for dollars’ behavior may exist
  • Not geographically sensitive
  • Lags the marketplace by one year

 

The FAVR Plan

The IRS FAVR plan has multiple compliance measures, based upon vehicle age; vehicle cost; annual mileage minimum and annual insurance declaration.  The FAVR Plan is based on a tight framework of guidelines. Under the FAVR Plan the IRS dictates the capital cost of the standard vehicle, which directly relates to reimbursement amounts. The standard automobile cost is typically updated annually.

PROS CONS
  • Business mileage is tracked
  • Non-taxable reimbursement when compliance is met
  • Multiple compliance measures
  • Reimbursement restricted to IRS Standard Automobile Cost
  • Heavy on administration

 

The Accountable Plan Publication 463

Under this plan, compliance is measured by tracking business miles driven. A quarterly calculation is made to determine whether any portion of the reimbursement is taxable.

PROS CONS
  • Tracks business mileage
  • Non-taxable reimbursement when compliance is met
  • Flexibility – does not restrict vehicle cost

 

To learn more about IRS compliant VRPs, contact us at 1-866-550-5188 or email info@cardataconsultants.com.

What Our Clients Are Saying

At first, we were reluctant to move away from fleet management. We saw it as an integral part of our corporate culture and also thought of it as recruitment leverage. Unfortunately, after one of our vehicles was involved in a DUI it became clear that the program was simply too risky to maintain. CFO, Oil & Gas Business

Get the Information You Need:


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Cents-Per-Mile

Are employees being overpaid and underpaid with the government rate?

...Save Money

...

Flat Rate Allowance

Are market gas prices number of business miles being considered?

...Improve Accuracy

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Company Cars

Is it time to ‘get out of the car business’?

...Manage Risk Better

...

Fixed & Variable Rates

Recognized as the most cost-effective option by Corporate America, government and associations.

...Be IRS Compliant