How Do I Choose Between a Company Car and a Car Allowance?

Your company gives you exciting news. Either you’ll be allowed to drive a company car or your employer will pay you per mile that you drive your own car. Eureka!

After the excitement wears off, you realize you have a choice to make. Should you take the keys they’re offering you? Or should you continue driving your own vehicle and pocket some extra cash?

You may have to break out a calculator to find the answer. But some generalities may help you decide.

Company Car vs. Car Allowance: How Do I Decide?

Should I drive a company vehicle or drive my car and get reimbursed per mile?

That’s what a Clark Howard listener recently asked.

Asked Maranda in Georgia: “My husband is considering a new job which will require a lot of travel. The company offers a company car or car allowance for use of his personal vehicle.

“From an employee perspective, which of these options would be most beneficial for my husband? What are some pros vs. cons?”

The IRS mileage rate for 2024 is 67 cents per mile. That’s for deductible costs. In other words, if you’re a full-time Uber driver and you want to do itemized deductions on your taxes, you can claim 67 cents per mile among other possible deductions.

Companies don’t have to abide by the IRS mileage rate if they’re offering a car allowance. But they most often use that number. Check with your company on the details and see if it’s 67 cents per mile.

“The easy button is driving the company car. You have to keep a log of miles that you drive in either case,” Clark says.

“[But] there will be some formula of imputed income you build for the personal miles. If your husband just drives the company car only on company business then you don’t have to worry about that.”

In other words, if you want maximum convenience, driving the company car — and only driving it for work — will create the least headaches. You’ll still need to log your miles. But your taxes and paperwork for your car allowance will be easiest that way.

Appraising Your Vehicle: How Much Does It Cost Per Mile?

You can get deep into calculating how much your vehicle costs to drive per mile. That includes the current fair market value of your vehicle, your insurance costs vs. how many miles per month you drive, your fuel efficiency and the current cost of gas as well as depreciation.

That’s not an easy calculation. Not exactly something you can do on the back of a napkin at a restaurant while you’re holding a conversation and eating a steak.

Clark is great at distilling these sorts of calculations into what makes the most sense for the average person.

“If your husband drives an older car, it’s almost always to his advantage to take the mileage rate as long as they’re paying a good mileage rate,” Clark says.

“If your husband likes new wheels or drives new wheels or newer wheels or an expensive car, then he’s much better off with the company car.

“This is all dollars and cents based on the expectation of what he would be driving. And those people who like fancy new wheels? Never take a deal on the reimbursement from the employer driving your own vehicle.”

Final Thoughts

Company assistance with the cost of your vehicle, via mileage reimbursement or providing a company car, is good news. Especially if your job is going to require you to travel.

You can get as detailed as you want on the math. But in general, the older your car is — and the less it’s currently worth — the more it makes sense to take the car allowance. And the newer your vehicle is and the more it’s currently worth, the more it makes sense to make use of a company car.