Working on your taxes? Navigating tax liability can be complex, and it's common for drivers to question why their reimbursements might be taxed as income despite participating in a FAVR reimbursement program, which is attractive for making reimbursements tax-free. This guide will address common queries and provide insights into determining and reporting tax liability.
Why is a portion of my reimbursements considered taxable income at the end of the year?
While FAVR programs are designed to get drivers tax-free reimbursements, there are scenarios where a portion of your payments may be taxable. It's essential to understand these situations to better manage your financial obligations.
There are three main reasons for taxable income:
- Non-compliance with driver's license or insurance requirements (document compliance) the moment the monthly compliance snapshot is taken.
- Non-compliance with your program's vehicle's age or MSRP (vehicle compliance).
- Falling below the minimum 5k miles per year the IRS requires drivers to apply for a FAVR program (drivers on these cases will also be reassigned to a standard CPM program) or report annualized mileage that falls below 80% of your expected mileage target, i.e. your assigned 'mileage band' (mileage compliance).
How does Everlance determine my tax liability amount?
Reimbursements received while on a FAVR or Accountable Plan are compared to the maximum amount the IRS considers tax-free. Everlance performs this calculation by multiplying your reported mileage by the IRS Standard Rate. Any reimbursements received over the amount the driver would’ve received if the IRS rate was used, will be considered income and must be declared and taxed accordingly. You can learn all about our tax calculation process here.
How is my taxable income reported to the IRS?
The portion of your reimbursement that is taxable needs to be accounted for on your year-end W-2 statement, as this amount is considered ordinary income and not subject to tax withholding when it was originally paid. For additional details, please reach out to your company's payroll department.
How do I know how much I will be taxed?
While Everlance cannot provide specific tax advice, we can provide you with the total amount that will be subject to taxation.
- If you're a driver: your tax totals will be displayed in the Everlance Dashboard. Information about amounts subject to tax is updated on your "Taxes" page in Everlance - as your compliance status updates each month and new mileage reports are approved for payment.
- If you're an administrator: your customer success representative will provide a summary report detailing your team's tax totals each quarter. This report will match the tax information that individual drivers will see in Everlance.
It's important to note that the exact amount you might pay in taxes is unique to each individual, as personal tax rates vary based on your specific tax situation. For personalized guidance based on your circumstances, we recommend consulting with a tax professional or reaching out to your company's payroll department.
Let us know if you have any questions!
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