On December 22, 2017, the President signed the Tax Cuts and Jobs Act (TCJA) into law. This law took effect on January 1, 2018. While this law is mostly concerned with corporate tax rates, organizations are not certain of the exact impact this will have on the future of their business vehicle programs. After consulting with our accounting firm we can confidently provide the following information.
- Fixed and Variable Rate (FAVR) regulation and tax code provisions surrounding accountable plans have not been changed. This means that FAVR programs remain the fairest, most accurate and defensible method of reimbursing business travel in personal vehicles. Additionally, FAVR programs will remain IRS compliant and continues to qualify as an accountable plan, given the accurate mileage reporting provided by Equo®.
- Mileage reimbursement programs commonly referred to as Cent-per-mile (CPM) programs have not been changed. Organizations with compliant, accountable CPM programs reimbursing drivers at a rate equal to or less than the IRS Safe Harbor Rate (currently 54.5 cents per mile) can continue making such payments without fear of tax waste.
- Allowance programs that do not meet the requirements of an accountable plan, like monthly flat allowances, remain taxable.
- Employees can no longer deduct unreimbursed vehicle expenses from their taxes. Unreimbursed vehicle expenses, previously filed as business expense deductions, can no longer be submitted if the expense exceeds 2% of their adjusted gross income (via Schedule A and Form 2106). If you are an employee, please note that this deduction is still available for the filing of 2017 taxes.
If you have further questions regarding the new tax law and how it impacts your business vehicle program, we recommend reviewing the following with your legal and tax counsel: IRS Revenue Procedure 2010-51 (explaining the purpose and substantiation function of FAVR and Accountable Plans), Internal Revenue Code Section 1.62-2 and Section 62 (regarding the deduction of ordinary and necessary costs of using a personal vehicle for business).
Lastly, we wish you the best of luck in the New Year! We look forward to helping you beyond the impact of tax laws on business vehicle programs. Check out our blog for more information on the new IRS rate, mileage reimbursement, and more.