A way of reimbursing employees who use their own or leased vehicles for work-related activities. FAVR payments must be made at least quarterly. Certain restrictions on how and how much the vehicle must be used to qualify for the FAVR allowance are set forth and enforced by the Internal Revenue Service (IRS).
An FAVR allowance includes two payment types: periodic fixed payments, and periodic variable payments. The periodic fixed payment includes fixed costs associated with driving and owning the vehicle, including depreciation, insurance and taxes. The total costs for these expenses are calculated and then adjusted to reflect the percentage of time the vehicle is used for business purposes. The periodic variable payment includes operating costs, such as gasoline, oil changes, tires and routine maintenance.