This may include commuting. As a result, businesses need to treat this as personal use. Or owners and employees may have access to a company vehicle after work for any reason.
So the value of personal use becomes a taxable fringe benefit. An employer must determine the value of this benefit. Because they must report this benefit on an employee’s Form W-2. You must follow several rules that can be used to make this determination.
Personal Use of Company Vehicle Valuation Options
Review your company’s policies and practices. And then decide which one works best for your situation.
General Valuation Rule
An employer can decide the value of personal use of a company vehicle. Do this by figuring how much an employee would have to pay a third party to lease the same or similar vehicle. This determination must factor in comparable terms and the geographic location. You may find this valuation rule hard to use because it is so facts specific.
By contrast, you may find this the easiest valuation rule for employers to use. Simply multiply the number of miles driven for personal use by the annual IRS-set standard mileage rate (58¢ per mile in 2019).
But only use this rule if you meet certain conditions:
- You reasonably expect use of the vehicle regularly in the business throughout the year (This means more than 50% of total annual vehicle mileage).
- The vehicle meets a mileage test. This means it’s driven at least 10,000 miles per year.
- The vehicle’s value does not exceed a set amount that can be adjusted annually. You calculate this from the time the vehicle is first made available to the employee. (In 2019, for example, this set amount would equal $50,400).
- The employer meets consistency requirements. This means that you usually must begin using the cents-per-mile rule on the first day you make the vehicle available to the employee. This goes for all later years too. (And it applies to a replacement vehicle provided to the employee).
Use this simple trick to figure commuting. Just multiply the number of one-way trips for which the vehicle is used by the employee by $1.50. But only use this rule if:
- You require the employee to commute in the vehicle.
- Your business possesses a written policy that the vehicle can’t be used for other personal purposes.
- You don’t designate the employee as a “control employee,” such as an owner or an employee who is highly paid.
Lease Value Rule
The IRS keeps a table of annual lease values (see Table 3-1). Use these to determine the taxable benefit of personal use of a company vehicle. Essentially, use the annual lease value based on the vehicle’s fair market value. Start on the date it’s first made available to the employee. Then reduce it by business driving that’s substantiated by the employer. (Use a record of mileage, the time and place of the travel, and the business purpose of the travel.) Treat any use that isn’t substantiated as personal use.
Treat the taxable fringe benefit of personal use of a business vehicle as paid on a pay period, monthly, quarterly, or at least annually. And then these become subject to withholding and FICA/FUTA taxes. You can find details for withholding and payroll taxes for this employee benefit in IRS Publication 15B. Wait before adopting a particular computation method for fixing the value of personal use of a company vehicle. First talk with your CPA or other tax advisor. Make sure you adjust your payroll practices. Ensure you meet employer responsibilities for withholding and payroll taxes.