Which IRS Plan is Right for your Business?
The benefit to an IRS compliant reimbursement is the non-taxable feature. The basis for reimbursement calculation is, “fixed and variable rate, based on geographic cost differences relative to vehicle standards”.
The most common plans in use by commercial businesses are:
- FAVR PLAN
- ACCOUNTABLE PLAN
- STANDARD RATE
• The FAVR plan is governed by Revenue Procedure 2010-51.
• The Revenue Procedure is reviewed annually with the most important update being the “standard automobile cost” allowed for calculating non-taxable payments.
• The IRS FAVR plan is complex with 21 data, program and driver tests.
• FAVR does not include finance or interest charges in the calculation of vehicle reimbursements.
• The Accountable Plan is governed by IRS Publication 463 – Travel, Entertainment, Gift and Car Expenses.
• The chief compliance measure of the Accountable Plan is business mileage, justified as non-taxable by substantiating business use
• The hallmark of the Accountable Plan is flexibility.
• The Accountable Plan structures reimbursements based all expenses applied to owning and operating a vehicle.
• The Standard Rate does not utilize the ‘best practice’ fixed and variable reimbursement methodology; however, its application is widely known and used somewhere in most businesses.
• The IRS publishes a new “Cents-per-Mile” rate under an updated Reference Number every calendar year. The standard mileage rate for 2017 is 53.5 cents-per-mile.
• The Standard Rate is ideal for ‘occasional’ business mileage.
• When used for regular ‘tool-of-the-trade’ driving, the Standard Rate under-pays low mileage Drivers, overpays high-mileage Drivers, and can encourage ‘driving for dollars’.
• The Standard Rate is not sensitive to regions, and does not adjust for changing gas prices.
If you’d like to learn more about company cars, a vehicle reimbursement plan, and other aspects of company transportation strategies, be sure to check out the CarData Learning Center. It has everything you need to make the best transportation choices possible for your organization’s bottom line and ability to reach its goals.