Providing vehicles to employees can be a great benefit for both the employee and employer; however, the tax reporting can often be complicated. Here are a few general items to consider:
Defining Personal vs. Business Use:
Business use of a company car is defined as using the vehicle to perform any job-related duty. On the other hand, personal use of a company car is anything non-business related (including commuting between a personal residence and work location). In order to substantiate business vs. personal use, detailed records of mileage, date and destination should be maintained by the employee. If detailed records are not maintained, the entire value of the use of the vehicle could be taxable to the employee.
Reporting Personal Use:
If there is personal use of a company car, the IRS considers this a non-cash fringe benefit that is taxable to the employee (and generally deductible by the employer). Similar to any other non-cash benefit, the IRS requires that you calculate the fair market value of the benefit and include it on the employee’s W-2. There are a few different methods that can be used to accomplish this, detailed below:
If you are considering providing vehicles to employees for personal use, keeping appropriate records and policies are crucial. If you would like more information, please contact us.
Article written by:
Michael Cobetto, CPA