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AUTOMOBILE EXPENSES
The Internal Revenue Code requires the value of the personal use
of an employer provided vehicle that does not qualify as non-taxable fringe
benefit to be included in the employee's taxable wages as shown on his/her Form
W2.
AUTOMOBILE EXPENSES AS A NONTAXABLE FRINGE BENEFIT
There are four general situations in which the use of an
employer provided vehicle will result in a non-taxable fringe benefit to the
recipient/employee:
-
The vehicle is used 100% for business reasons.
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The value of the personal use is so small that accounting
for it is unreasonable or administratively impractical.
-
The employer maintains a written policy against the
employee's personal use of the car and other specified conditions are met.
-
The employer maintains a written policy that restricts the
use of the car to commuting and other specified conditions are met.
Under this alternative, an amount determined by reference to the Special
Valuations Rules must be included in the employee's taxable wages.
If the employee's use of the car does not fall within one of the above
situations, then the value of the personal use must be computed by the employer
and included in taxable wages as shown on Form W-2 or the employee should
reimburse the employer for the personal use.
GENERAL VALUATION RULE
In general, the fair market value (FMV) of an employer-provided vehicle is the
amount the employee would have to pay a third party to lease the same or similar
vehicle on the same or comparable terms in the geographic area where the
employee uses the vehicle. A comparable lease term would be the amount of
time the vehicle is available for the employee's use, such as a 1-year period.
Do not determine the FMV by multiplying a cents-per-mile rate times the number
of miles driven unless the employee can prove the vehicle could have been leased
on a cents-per-mile basis.
SPECIAL VALUATION RULES
There are three valuation rules that relate to automobile usage:
- Cents-per-mile rule.;
- Commuting rule; and
- Automobile lease valuation rule.
If one
of the special rules listed above has been properly used, the employee must
include in income the value determined under the above rules minus any
reimbursement that the employee has paid to the employer. If one of the
special valuation rules is being used, the employee must be notified of he
election by January 31 of the calendar year for which the election will apply or
30 days after the first benefit is applied, whichever is later.
CENTS PER MILE RULE
If an employee is provided with a vehicle that is either reasonably expected
to be used regularly in a trade or business throughout the calendar year or
satisfies the Mileage Rule requirements, the value of the benefit provided is
the standard mileage rate multiplied by the total miles the employee drives the
vehicle for personal purposes. For 2008 this rate is 50.5 cents per mile
for all miles. click here for other
years. The standard mileage rate must be applied to personal miles
independent of business miles.
A vehicle meets the mileage rule in a calendar year if:
- It is actually driven at least 10,000 miles in that year; and
- It is used during the year primarily by employees.
The vehicle is considered used primarily by employees if employees use it
consistently for commuting. If you own or lease the vehicle only part of
the year, reduce the 10,000 mile requirement proportionately.
The cents-per-mile rate includes the FMV of maintenance and insurance for the
vehicle. For miles driven in the United States the cents-per-mile rate
includes the FMV of fuel provided. If fuel is not provided, the rate may
be reduced by no more than 5.5 cents per mile.
Use the cents-per-mile valuation rule to value the miles driven for personal
use. To figure how much to include in an employee's income, multiply the
number of personal miles driven by the employee by the appropriate
cents-per-mile.
You cannot use the cents-per-mile rule for automobile if its value when you
first make it available to any employee for personal use is more than an amount
determined by the IRS as the maximum automobile value for the year. For
2007, you cannot use the cents-per-mile rule for a passenger automobile whose
value is over $15,100 or a truck or van whose value is over $16,100.
click here for other years.
COMMUTING VALUE RULE
The value of the commuting use of an employer-provided vehicle is $1.50 per
one-way commute for each employee who commutes in the vehicle. Use this
value to figure commuting value if the employer and employees meet all of the
following criteria:
- You provide the vehicle to an employee for use in your trade or
business, and for bona fide noncompensatory business reasons, the employee
is required to commute to and from work in the vehicle.
- There is an established policy under which the employee may not use the
vehicle for personal purposes, other than for commuting or de minimus
personal use (such as a stop for a personal errand on the way between a
business delivery and the employee's home);
- The employee does not use the vehicle for personal uses other than
commuting and de minimis personal use.
- The employee that is required to use the vehicle for commuting is not a
control employee.
Control Employees include:
- A board or shareholder-appointed, confirmed, or elected officer whose
pay is $90,000 or more.
- A director.
- An employee who pay is $185,000 or more.
- An employee who owns 1% or more equity, capital or profits interest in
your business.
- A government employee whose compensation is equal to or exceeds Federal
Government Executive Level V.
- An elected official.
LEASE VALUE RULE
Under this rule you determine the value of an automobile you provide to an
employee by using its annual lease value. For an automobile provided only
part of the year, use either its prorated annual lease value or its daily lease
value.
If the automobile is used by the employee in your business, you generally
reduce the lease value by the amount that is excluded from the employee's wages
as a working condition benefit. However, you can choose to include the
entire lease value in the employee's wages.
ANNUAL LEASE VALUE
Generally you figure the annual lease value of an automobile as follows:
- Determine the FMV of the automobile as of the first date the automobile
is available for personal use.
- Using the IRS Annual Lease Value Table, read down column 1 until
reaching the dollar range within which the FMV of the automobile falls.
Then read across to column 2 to find the corresponding annual lease value.
Click here for the IRS table.
FAIR MARKET VALUE (FMV)
The FMV of an automobile is the amount a person would pay to buy it from a
third party in an arm's length transaction in the area in which the automobile
is bought or leased. That amount includes all purchase expenses, such as
sales tax and title fees.
You may be able to use a safe-harbor value as the FMV. For an
automobile you bought at arm's length, the safe-harbor value is your cost,
including sales tax, title, and other purchase expenses.
For an automobile you lease, you can use any of the following as the
safe-harbor value:
- The manufacture's invoice price (including options) plus 4%
- The manufacture's suggested retail price minus 8% (including sales tax,
title, and other expenses of purchase).
- The retail value of the automobile reported by a nationally recognized
pricing source if that retail value is reasonable for the automobile.
Each annual lease value in the tables includes the value of maintenance and
insurance for the automobile. The annual lease value does not include the
value of fuel you provide to an employee for personal use, regardless of whether
you provide it, reimburse its cost, or have it charged to you. You must
include the value of the fuel separately in the employee's wages. You can
value fuel you provided at FMV or at 5.5 cents per mile for all personal miles
driven by the employee.
If you reimburse an employee for the cost of fuel, or have it charged to you,
you generally value the fuel at the amount you reimburse, or the amount charged
to you if it was bought at arm's length.
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