Is a Car Allowance Taxable?

With an accountable plan, the employer reimburses allowable business expenses. In this case, the reimbursement is not taxable and expenses are not deductible. Under a non-accountable plan, the payment may be a fixed amount per day or month with no documentation needed from the employee. The employer generally includes this on the W-2, and the taxpayer claims the business-use expenses of the car on Form 2106, according to IRS Publication 463.