Is a vehicle reimbursement taxable by the IRS?
The answer to the question of whether vehicle reimbursements are taxable or not depends upon the reimbursement model. Outlined below are the 6 most common reimbursement models and the details of their taxation.
Taxation by Reimbursement Model
Company Cars – Company owned
Drivers are assessed a taxable benefit for the personal use of the vehicle. Some companies require their drivers to pay a Personal Use Charge, which reduces the total tax paid at the end of the year.
Company Cars – Company leased
As with a company owned car, drivers are assessed a taxable benefit for the personal use of the vehicle. Some companies require their drivers to pay a Personal Use Charge, which reduces the total tax paid at the end of the year.
Flat Monthly Payments – An Employee owned car
Flat monthly payments, more commonly known as allowances are taxable. The lack of regional variation in the flat rates; and the absence of mileage recording makes flat rates income rather than reimbursement.
Flat Rate Plus a Fuel Card – Employee provided car and a company provided fuel card
Taxation for this reimbursement model is not quite as straight-forward as it is for others. The flat rate itself is taxable; however the amount of business fuel dollars is not. The personal fuel dollar amount is taxable; whereas costs for maintenance, repairs, etc. would need to be allotted according to business and personal mileage for appropriate taxation.
Cents per Mile –The IRS Rate –An employee provided vehicle
This is a non-taxable reimbursement.
Fixed & Variable Reimbursement
This is the most accurate reimbursement model, it is sanctioned by the IRS and is non-taxable. Regulations governing the Fixed & Variable model are FAVR and the Accountable Plan.