When driving on behalf of an employer, employees will often be required to pay costs on behalf of the employer. Vehicle reimbursement programs ensure that employees are reimbursed for the costs associated with driving to and from work and fulfilling other work-related responsibilities. Employees are provided with an allowance that is intended to pay for work-related expenses. Also, employers are sometimes able to save money by not needing to purchase company cars and can avoid the issues associated with employees using work cars for purposes not related to work. This also handles situations where employees only need to drive on an occasional basis.
One type of vehicle reimbursement program is the flat allowance program. Many view this as an equitable option because each employee is provided the same allowance. However, a flat program does not account for differences in taxes, insurance premiums and fuel cost. Also, the allowance is sometimes taxable, which reduces the extent to which this program reimburses the employee.
Rather than guess how much your employees will drive, a cents-per-mile program reimburses employees based on how far they drive with the reimbursement being driven by the typical fuel expenses for driving X miles. However, if the IRS determines that the number of cents-per-mile reimbursed are unreasonable, this may be treated as a taxable income. It is required that the employees use the cents-per-mile reimbursement rate that is based on the IRS Standard Mileage Rate. Also, the cost of owning car insurance in a particular area is factored into how much an employer can reimburse his or her employees per mile.
To account for differences in the expenses that employees experience, another option for a vehicle reimbursement program is to provide geographically-based reimbursement that is an accurate reflection of an employee’s actual costs. Based on where the employee lives, the reimbursement is calculated based on the typical costs of owning a vehicle and living in a particular area. Variable rate reimbursement programs do not come with a payroll tax as long as the program is IRS-compliant. Employees can be provided with technology they can install in their cars to automate the capturing of car miles.
Vehicle Reimbursement VS. A Company Car
Many business owners choose a company car rather than a vehicle reimbursement program. However, there are many hassles to providing a car. Your company may be liable for accidents the car has, for example. Vehicle reimbursement programs are the better option overall. You can find more information at CarDATA.