Company Owned Vehicles
Note that the following is general discussion only - there are a number of
finer points that must be considered in calculating the actual benefit.
Many businesses require the use of vehicles and this can be a significant expense
for the business. Note that partnerships and corporations cannot use the mileage
method of calculating the expense. Actual expenses must be used. In general this
is not a problem as expenses are generally from company credit cards or billed
and paid by the company.
The challenges come when an employee is allowed to use a vehicle for non-business
purposes. This includes commuting (in most cases). The value of that personal
use must be determined and included on the employee's W-2 (subject to payroll taxes).
This is a taxable fringe benefit.
General Valuation Rule
In most cases the value assigned to personal use must follow the General Valuation
Rule. Basically, this is the cost the employee would have to pay to lease the
vehicle in the locality of the business. (Note that this lease amount is as an
"arm's-length" transaction.) This is the Fair Market Value (FMV) of the vehicle.
Note that neither the amount the employee considers to be the value of the fringe
benefit nor the cost the company incurs to provide the benefit determines its FMV.
There are other choices that have other restrictions or limitations.
Lease Valuation Rules
Under the Lease Valuation Rules the FMV of the automobile is determined on the
first date it is available for use by the employee. This is taken from a table
listed in Treasurery Regulations Section 1.61-21(d)(2)(iii). This table converts
the FMV of the automobile to the annual lease value.
In both of the above methods the value of the vehicle is then prorated based on
mileage. So each employee is asssigned the portion of the value corresponding to
the percentage of the total miles that employee drives.
What seems the easiest is to use the basic annual business mileage rate to
figure this value. That is called the "Cents-Per-Mile Rule" and it is available in very limited cases.
It is described on its own page.
Commuting Valuation Rule
The value of a vehicle used for commuting is determined by multiplying each
one-way commute by $1.50. To use this rule - the vehicle must be used in teh
busienss for non-compensatory purposes
- The employer must require the employee to use the vehicle for commuting
- There must be a written policy that the employee cannot use the vehicle for
personal purposes except commuting (and the employee does not)
- The vehicle is an automobile
- The employee cannot be a control employee.
The Commuting Valuation rule can also be used for certain employees if the
employee would otherwise walk or take public transportation, but it is unsafe
to do so.
Note that maintenance and interest but not fuel is included in the leased value.
Other services are not and are added to the valuation process. Also, if the
employer pays for fuel then that must also be added to the value at a rate up
to $0.055 per mile (driven in the US, Canada, or Mexico only).
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