Company Provided Vehicles and IRS Rules

If you supply a vehicle to an employee for business or business and personal uses, there are several rules laid down by the IRS to properly account for and tax the value company provided vehicle. If you currently provide a vehicle to an employee for business and/or personal use, this post is for you. Let’s go over some of the rules to be sure you are properly structured.

If you supply a vehicle to an employee and that employee uses that vehicle strictly for business purposes, the vehicle use is considered a working condition fringe benefit. This means the value of using the vehicle does not need to be included in the employee’s income for tax purposes.

But, if you that employee uses the company vehicle for personal use as well as business use, it is considered a fringe benefit. The value of a non-monetary fringe benefit is taxable to an employee and must be included in income and taxes appropriately, unless it can be considered a “De minimus” fringe benefit, (more on that later).

Here are some possible scenarios and how to handle the reporting of vehicle use fringe benefits:

Personal use of company vehicle
Personal use of a company provided vehicle is a taxable, non-cash fringe benefit. Personal use of a company car includes:

• Commuting to and from work
• Running a personal errand
• Vacation or weekend use
• Use by a spouse or dependent

A company provided vehicle is considered a taxable fringe benefit and included in the employee’s compensation for tax purposes. To document this accurately, you must determine its value using the General Valuation rule.

Valuing personal use
You will need to determine the fair market value of the employee’s personal use of the company vehicle in their wages. You can use a general valuation method or one of three special valuation rules to do a personal use of company vehicle calculation. You can use different rules for different vehicles.

With the general valuation rule, the fair market value is the price the employee would pay to lease the same or comparable vehicle in the same geographic area for the same length of time.

However, your employee is likely to use the vehicle for both business and personal purposes. You may need to use a Special Valuation rule.

Special valuation rules
There are three special, or mixed-use valuation rules provided to manage the value of the vehicle when there is a mix of personal and business use of the vehicle

Commuting valuation rule
You might use the commuting valuation rule if an employee uses a company vehicle to commute to and from work. The fair market value set by the IRS is $1.50 for a one-way commute and $3 for a round trip.

Annual lease valuation rule
With the annual lease valuation rule, you’ll determine the fair market value of the employee’s personal use by multiplying the annual lease value of the car by the percentage of personal miles driven.

Vehicle cents-per-mile rule
With the vehicle cents-per-mile rule, you will determine the fair market value of the employee’s personal use by multiplying the personal miles driven by a standard mileage rate ($ .58 per mile for 2019).

To use one of the three special valuation rules, you and your employees must keep thorough and timely reports of the personal use of company vehicles.

Exceptions to the personal use rule
In some cases, personal use of a company vehicle may be exempt from inclusion in taxable wages if it can be considered a “De minimis fringe benefit”, meaning it is too small for consideration. Small infrequent personal trips might fit into this category.

If you need more assistance in developing a company vehicle policy, please contact the experts at Infinium HR Group at info@infiniumhr.com