ꦡ What Is the Fixed and Variable Rate Allowanc𝓰e (FAVR)?

The fixed and variable rate allowance (FAVR), or fixed and variable rate reimbursement, reimburses employees who use their own or leased vehicles for work-related activities. The 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) requires that FAVR payments be made at least quarterly. It imposes guidelines for how and how much an employee’s vehicle must be used to qualify for the allowance.

A fixed and variable rate allowance plan may also be referred to as a "mileage 澳洲幸运5官方开奖结果体彩网:reimbursement plan" or a "fixed and v൲ariable plan." It reimburses employees through a combination of a monthly allowanℱce and mileage reimbursement payments.

One of FAVR's advantages over a flat allowance system is that it adjusts for location-specific costs and an employee’s actual mileage, which helps ensure accurate reimbursements. This avoids the over- or underpayment that can occur with simpler, non-tailored systems.

How the Fixed and ♈Variable Rate Allowance (FAVR) W🎐orks

A fixed and variable rate allowance includes two payment types: periodic fixed payments and periodic variable payments.

• Periodic Fixed Payment: This covers expenses like depreciation, insurance, registration fees, and taxes. These costs are adjusted based on the percentage of time the vehicle is used for business purposes.
• Periodic Variable Payment: This covers the operational costs of the vehicle, such as fuel, oil changes, tires, and routine maintenance.

The IRS has set the 澳洲幸运5官方开奖结果体彩网:standard mileage rate for business use of an automobile at 70 cents per mile for 2025 and 67 cents for 2024. For charitable uses, the rate is 14 cents per mile for both 2024 and 2025. The rate for medical care use and moving is 21 cents per mile in 2024 and 2025. Amounts are updated annually to reflect changing transportation costs.

FAVR: A Solution for Localized Cost Differences

Many consider FAVR to be more accurate than the IRS standard mileage rate because it considers an employee’s individual fixed and variable costs for operating a vehicle, which may vary depending on factors such as the type of vehicle, the cost of fuel, insurance, and 澳洲幸运5官方开奖结果体彩网:local taxes.

For a company that has employees across the country, what makes sense as an allowance for fuel and other costs in Texas, where fuel is relatively cheap, may not make sense for employees in New York or California, where fuel and related costs are comparatively more expensive.

Such pricing differences may also include far higher registrati🐭on fees, inspection costs, a greater frequency of such costs,🐼 and higher maintenance and repair prices in some locales. A FAVR plan may be tailored to offset local pricing differences.

FAVR vs. Per-Mile Reimbursement

Some employers prefer using a 澳洲幸运5官方开奖结果体彩网:per-mile reimbursement system, which reimburses employees based on the number of miles driven. While simpler, this system doesn’t adjust꧅ for fluctuating costs, such as rising fuel prices. Additionally, per-mile reimbursement plans tend to be one-size-fits-all and don’t account for regional differences, leading to potential over- or underpayment. In contrast, FAVR provides a more accurate, location-based solution that adjusts for individualized costs.

The Bottom Line

FAVR offers a more accurate and equitable method of reimbursing employees for the costs of using their vehicles for business purposes. By accounting for location-specific and individual expenses, FAVR can prevent over- or underpayments, ensuring employees are fairly compensated for their actual costs. While it requires more administration than a per-mile reimbursement, its personalized approach makes it a popular choice for companies with employees spread across different regions.