Personal Use of Employer-Provided Vehicles

One of the most common fringe benefits provided to employees is the use of a company-owned or leased vehicle.  The personal use of an employer-provided vehicle by law is designated as a fringe benefit and, generally, fringe benefits are taxable unless specifically excluded by law.  As such, taxable fringe benefits are subject to employment taxes and are includible in the employee’s Form W-2, Wage and Tax Statement.  There are special rules to withhold, deposit and report the employment taxes on these benefits.

If an employer provides a vehicle for an employee’s use, the amount excludable as a working condition fringe is the amount that would be allowable as a deductible business expense if the employee paid for its use.  Employees must substantiate their business use through adequate documentation to qualify as an excludable working condition fringe.

The general way to determine the value of a fringe benefit is to determine the fair market value of that benefit.  The fair market value is the price an employee would incur to buy or lease the benefit in an arm’s length transaction.  An employer can use the following special valuation rules to determine the value of an employer-provided vehicle.

1. Vehicle Cents-Per-Miles Rule - The employer multiplies the miles the employee drove for personal use by the standard rate.

2. Commuting Valuation Rule - The employer multiplies the number of times the employee used the vehicle for commuting times $1.50 if the employer meets all the requirements for using this method.

3. Automobile Lease Value Rule - The employer uses the annual lease value to determine the value of the employee’s personal use of the vehicle.

There are specific requirements that must be met to use these special valuation rules.  For example, the employer must provide the employee with a vehicle for commuting for bona fide non-compensatory business reasons to use the commuting valuation rule.

If you feel that your employer may not be computing your taxable fringe benefits correctly or that it may be overstated on your W-2, please call for more information.

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