What is a Fixed and Variable Rate Mileage Reimbursement Program (FAVR)?

• There must be at least 5 enrolled drivers in the program
• All enrolled drivers must drive at least 5000 business miles per year
  
• Drivers must possess valid driver’s license and maintain vehicle insurance in compliance with the company's requirements

Everlance will work with you to develop and implement an IRS-compliant FAVR program that achieves your organization’s budgetary objectives. Please contact the Everlance Sales team to see if a FAVR program is right for your organization.

A Cent-per-Mile (CPM) is self-explanatory: drivers get a specific amount per business mile driven (most companies use the IRS Standard Rate for the current year). A CPM program reimburses all employees on the program at the same rate regardless of vehicle type and where they operate it to perform business tasks.

A FAVR program is a sophisticated mileage reimbursement program. Everlance’s FAVR car allowance program factors in each employee’s local fixed costs of the program's base vehicle ownership (depreciation, taxes, insurance, license & registration, etc.) and variable costs of vehicle operation (oil & gas, maintenance, tire wear, etc.) to create a customized variable mileage reimbursement rate that is specific to each program, based on the employee’s location.

There are two instances of FAVR compliance:

• License & Insurance (Document Compliance), which involves drivers uploading and maintaining valid 1) Drivers License, and 2) Auto-Insurance Policy (e.g. the Declaration Page, where policy coverages are listed). Documents must be non-expired and insurance coverages (e.g. liability limits or deductibles) must meet FAVR program requirements to be considered compliant for tax purposes.
• Vehicle Compliance, determined from the vehicle information on your insurance document uploads, specifically these vehicle characteristics for the enrolled vehicle: 1) Vehicle Age (for example, 2019 or newer model), and 2) Vehicle MSRP (for example, $25,500). To determine vehicle compliance status, the employee's vehicle age (model year) and value (MSRP) are compared to the program's plan vehicle. In addition to confirming that the employee has not previously used advanced 'accelerated' depreciation methods to claim any previous tax deductions on the enrolled vehicle (this is not typical).

Being non-compliant with any of these requirements may result in reimbursement taxability. Separately, if non-compliant with Document Compliance your company could enforce specific internal policies that may call for withholding reimbursement portions (or removing you from the FAVR program) if these requirements aren't met, in order to encourage compliance.

If the monthly compliance snapshot determines that you are non-compliant in these categories, that month's reimbursement is subject to a Tax Calculation to determine any potentially taxable amounts.

If a driver is non-compliant it's up to the company's discretion to withhold their payment until the issue is resolved. Amounts paid in months that a driver is non-compliant are potentially taxable (see Tax Calculation).

Yes, they can enroll non-compliant vehicles, but until they meet company vehicle requirements (MSRP and age), a Tax Calculation will be applied to their reimbursements.

No. A FAVR payment is determined on the program's plan vehicle, which is selected by the Employer during implementation to determine FAVR rates. A new vehicle will only affect whether the driver meets the Vehicle compliance age and value requirements.

FAVR allowances (by IRS rules) are based on a single vehicle. Drivers may own several vehicles, but can only enroll one for their reimbursement program. Usually, that vehicle should be the newest one, even if it isn't the one they drive most often for business.

Let's say an employee originally enrolled a 2016 Honda Civic but then wants/needs to enroll a 2024 Toyota Camry instead (either to meet vehicle requirements or for any reason). They'd submit a new insurance declaration page that lists that vehicle, fill in the last 5 digits of the new vehicle's VIN while on step 3 of submitting new documents ("Vehicle Information"), and our reviewers will update/complete their information! 

*Make sure the last 5 digits of the VIN can be found in the insurance document, otherwise the submission will be rejected for missing VIN.

Compliance statuses for a given month are determined on the final day of the calendar month. Drivers must submit documents or updates by the last day of the month to get reviewed on time. Even if the review is completed in the first days of the next month, the information submitted will be used to determine compliance status for the previous month of submission. But remember, although reviewers usually review documents the same or the next day of submission, it could take up to 3 business days in some cases depending on submission volume (if possible, avoid submitting near the deadline!).

Fixed rates change when the driver is assigned to a different program, or their mileage band changes. For example, if they were expected and assigned to drive 10,000 - 15,000 miles in the year and end up driving 6,000, their mileage band will be adjusted, affecting their fixed portion (in that case it'll be lowered. If mileage exceeds the mileage band, it'll increase). 

Let us know if you have any questions!