Companies that track the deductible mileage of their employees often use the standard IRS deduction rate, which is 56c/mile in 2021. Using a fixed mileage rate simplifies calculations, but also means that employees living in higher cost of living areas are reimbursed the same even if costs are higher for gas or vehicle maintenance.
To account for this, FAVR (fixed and variable rate reimbursement) outlines how US companies that choose to use a variable rate can implement more flexible reimbursement programs.
Here are some things you should know before getting started with FAVR:
Employees must maintain their car insurance and have over 5000 miles in deductible mileage for a given calendar year. Additional requirements and information needed to implement the FAVR plan can be found in Rev. Proc. 2010-51, as written by the IRS. This document can be found here.
If you operate a taxi cab or multiple vehicles simultaneously, you might not be eligible for the FAVR plan. Other limitations apply for leased vehicles, non-standard depreciation claims, etc. US Postal Service employees are also prevented from using FAVR. If this applies to you or you want to confirm your eligibility, check out the legalese here.
Using a fixed mileage rate can limit potential discrepancy about what a fair reimbursement rate is. Discrepancies may vary due to a number of factors, such as cost of living, vehicle maintenance, etc. Using FAVR, while more fair if implemented properly, might invite conflict in the workplace. The IRS standard business deduction rate is clearly defined, easy to use, and less prone to subjective interpretation.
Invite Team members and administrators with MileCatcher Teams and manage your company’s mileage from one place! No matter the size of your company, big or small, MileCatcher offers multiple features that can be used to run a FAVR program:
- Establish a company-wide reimbursement rate for all Team members, or allow Team members to override it for a custom rate that will apply to their account individually.
- Generate company-wide reports for Team members' business mileage.
- Add and/or remove Team members with prorated billing, down to the second!