November 21, 2011
Personal use of employer provided vehilcle
Personal use of employer provided vehicle encompasses anything that is not business related, it also includes commuting.There are various tax implications of using the employer's vehicle personally. If you are using a company vehicle, you are required to keep a log to keep track of all trips taken in the car. The elements that the log should include are:
- mileage of the trip and
- purpose of the trip.
Then, at the end of the year you can determine what percentage of the mileage was for personal use and what percentage of the mileage was for business use. These percentages will be useful in determining the taxation implication of the personal use of the vehicle on yourself as an employee. If, by any chance you did not complete a log during the year, you can still figure out the elements at the end of the year to determine your business vs. personal use of a company vehicle But a very important thing to remember is that if you do not have a completed vehicle log and can not determine your business vs. personal use through alternative means, IRS will assume that you used the vehicle entirely for personal use. According to IRS Publication 15-B, “Any use of a company-provided vehicle that is not substantiated as business use is included in income.”
Now after keeping track of expenses & usage, the next step is ascertaining the tax implications.
The personal use value appears on the employee's Form W-2 and is treated as salary on his Form 1040. FICA taxes must be withheld from the employee's pay on the value.
For vehicles, you are required to use one of three methods for the computation explained below:
Commuting Rule, and
Lease Value Rule.
- Under the cents-per-mile rule you simply multiply the current mileage rate ($.51 for January through June 2011; $.555 for July through December 2011) times the personal use mileage. To use this method you must, among other requirements, use the vehicle more than 10,000 miles per year and the vehicle must be valued at less than the maximum permitted value when placed in service ($15,300 autos, $16,000 truck or van for 2010), and meet the regular use requirements.
- Valuation for the commuting rule is based on $1.50 per one-way commute (per employee). To qualify for this method you must (1) provide the vehicle for bona fide business purposes and require the employee(s) to commute in the vehicle, (2) establish a written policy under which you do not allow the vehicle to be used for personal purposes other than commuting, (3) if the vehicle is an automobile it can't be used by a control employee.
-For the lease value rule, most employees will qualify under the lease value rule for determining the value of personal use of employer provided vehicle based on the fair market value that is equal to what it would cost to lease a similar vehicle from a third party, known as the annual lease value. To make this calculation easy, the IRS provides an annual lease value for vehicles based on the vehicle’s fair market value. The vehicle’s fair market value can be determined from any number of websites or automobile appraisers. Also, you can use websites like Kelley Blue Book’s website: www.kbb.com. Once you have the vehicle’s fair market value, you can use the annual lease value table provided by the IRS in Publication 15-B.
So, determine the value of Personal use of employer provided vehicle, based on any information mentioned above & do not forget to get it included in your W2, in case your employer doesn't have a designated accounting department to take care of this matter; and also include this indirect income in your income tax return Form 1040.