Total Tax Waste for Employers and Employees Adds Up to $1.2 Billion
BOSTON–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/carallowance?src=hash” target=”_blank”gt;#carallowancelt;/agt;–Motus,
the premier vehicle management and reimbursement platform, today
released its Vehicle
Program Tax Waste Report, which reveals how car allowance tax waste
impacts U.S. companies and their mobile employees, including those who
work in professional sales and management, as well as top executives.
The report found that 39 percent of one year’s car allowance spend is
lost to tax waste, with the total tax waste for employees and employers
reaching $1.2 billion each year.
“While car allowance programs are simple to manage and offer employees
the freedom to choose the vehicle they drive, they also have hidden
costs that may not be obvious to employers,” said Ken Robinson, market
research analyst for Motus. “The most concerning of these costs is the
tax burden it places on both the companies and their employees. Our
research found that an entire year’s allowance spend is lost to tax
waste across both the individual and the company every two and a half
To illustrate the true costs of car allowance programs, the report takes
a look at how much of the average monthly allowance for mobile workers
makes it into their bank account each month. According to the findings,
the average monthly allowance for mobile workers is $575. Once
accounting for social security and income taxes that employees must pay
(about 7.65 percent and 24 percent of their earnings, respectively,
which includes car allowances), only $393 of the original $575 allowance
In the past, employees could claim a tax deduction for unreimbursed
business mileage expenses. This helped soften the tax on their car
allowance. However, tax
law changes that took effect in 2018 eliminated this deduction,
leaving employees who were paid the allowance to cover the business
portion of their driving expenses.
“Not all vehicle programs are taxable fringe benefits like car
allowances. In fact, not all car allowance programs are fair and
accurate for all employees, as they make large assumptions that the cost
to own and operate a vehicle is the same everywhere in the country and
that every trip is the same distance,” said Craig Powell, CEO of Motus.
“Fixed and Variable Rate (FAVR) programs remain the most accurate and
defensible process for reimbursing employees for the business use of
their personal vehicle and are the only IRS-approved mileage
reimbursement method. While FAVR requires considerable data to verify
the accuracy of expenses, platforms like Motus automate the process and
make these programs easy to implement.”
The report also explains how car allowances are costing the companies
providing these programs. When employers pay a car allowance, they are
also responsible for payroll taxes to cover social security and Medicare
taxes. This means a $575 allowance costs companies about $619 per mobile
worker. In total, $226 is lost to taxes on a $575 car allowance every
month between employers and employees.
Additional findings in the Vehicle Program Tax Waste Report include:
Almost half of the people that receive car allowances (47 percent) are
in professional sales and related professions. Executives and chief
executives make up 42 percent of car allowance recipients.
The average monthly allowance for mobile workers is $575, while the
average monthly allowance for executives is $830.
- For every $100 paid in monthly car allowance, $38 is lost to taxes.
Companies with allowance programs are estimated to pay more than $200
million each year in payroll taxes alone.
The average annual tax burden on U.S. employees from car allowances is
To access the full report, please visit: https://resources.motus.com/reports/motus-tax-waste-report
Motus is the definitive leader in mileage reimbursement and driver
management technologies for businesses with mobile workers and fleets of
all sizes. Only Motus leverages deep insights captured across the
world’s largest retained pool of drivers to calculate personalized and
compliant vehicle reimbursements, keep drivers productive and safe, and
ultimately maximize returns and minimize risk for all aspects of the
mobile workforce. Motus’ expertise also underpins the annual Internal
Revenue Service (IRS) business mileage standard, the amount an
individual can deduct for business vehicle expenses. For more
information about the company, please visit www.motus.com
or connect with us on Twitter,
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