Expense policy

Spend money to make money: The average car allowance for sales reps

January 14, 2020
|
4
Min Read

To offset the tax burden, companies need to find a fair way to reimburse employees through the company vehicle allowance. For this, there are a few essential questions the business needs to answer.

What is the average company vehicle allowance you need to offer? How much traveling do your Sales Reps do to make sales and close deals? 

Often employees get reimbursements for using their personal vehicles to make deliveries, meet with clients, go to business meetings, and make sales calls. In such cases, what is the average amount of money an employee can expect to receive in a monthly car allowance? Keep reading to learn about the average car allowance for sales reps. 

Why do companies offer a car allowance?

  • Most companies use a car allowance system because it is secure from an accounting standpoint. 
  • Companies add the agreed-upon car allowance into the employee's paycheck.
  • In this method, there's no keeping track of individual car expenses such as fuel and mileage. 

How do companies determine a car allowance?

Companies use the same formula as the IRS to determine a standard mileage rate for vehicle use in business. What are the components of the car allowance?

  • Number of miles an employee drives for company-related business
  • Vehicle operating costs including gas 
  • Expenditures like insurance, taxes, repairs, maintenance, and depreciation

Taking these expenses into account, a rate results and is multiplied by the mileage estimate to come up with the car allowance. 

What is the average car allowance for Sales Reps?

The average monthly car allowance for Sales Reps is $575 per month. This means that $575, on average, is added to an employee's salary every month. What does this mean when it comes to tax? 

After paying social security and income taxes, the employee ends up with $393 per month. The tax consequences may have companies looking at other options when it comes to reimbursing employees for personal vehicle use. 

What can companies do instead? 

A Fixed and Variable Rate program (FAVR) reimburses the employee for fixed costs like insurance, taxes, and registration and variable expenses such as gas and maintenance. This is tax-free for the employee if it meets the IRS expense-accounting requirements. 

Another option is mileage reimbursement.

  • The IRS sets the standard business mileage rate each year
  • This rate is determined by the average cost of operating a motor vehicle. 
  • The rate for 2020 is 57.5 cents per mile. 
  • This number multiplied by the number of miles driven gives you the tax-deductible costs for the year. 

How to effectively manage car allowances?

A car allowance for sales reps is considered a fringe benefit by the IRS and is taxable income. That's the downside, but what are the benefits? A car allowance program is easy to manage, and it gives an employee the freedom to choose the car they drive.

Now that you know the average car allowance and the pre-requisites to giving one, you can plan accordingly. While you are at it, do you know who can help you with receipt management, travel expense management, and more? 

We at Fyle are the new standard in business expense management and promise to have the solution that best fits your business needs. Schedule a demo to understand how we can tend to your expense management needs. 

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