Does your company provide vehicles to its employees? If so, you need to pay attention to how this may affect your employee’s taxable income.
A company-owned vehicle that is used for business purposes (as long as it’s documented) is not considered taxable income. However, when your employee uses the vehicle for personal use, it becomes taxable and must be reported on their W-2.
What do we mean by personal use?
Simply put, any time the company-provided vehicle is being used for non-work-related purposes. We’re talking:
What do I do if there is personal use of a company vehicle?
The value of personal use of a company vehicle must be reported as income at least once a year. There are four options for how you report this:
General Valuation Method
The general valuation method is determined by the cost an individual would incur to lease the same vehicle under the same terms in the same geographic area.
Annual Lease Value Method
To use this method, multiply the annual lease value of the car (via the IRS Annual Lease Value table) by the percentage of personal miles driven. This will give you the Fair Market Value (FMV) of the employee’s personal use of a company-provided vehicle.
As a note, the amount determined from the table includes the value of maintenance and insurance for the vehicle, but not the value of employer-provided fuel. That has to be valued separately.
Using this method, the FMV is determined by multiplying the IRS standard business mileage rate (58 cents per mile as of Jan. 1, 2019) by the number of personal miles driven.
Two conditions must be met in order for you to use this method:
Commuting Value Method
The value is calculated by multiplying the number of trips by either $1.50 (one way) or $3 (round trip). However, there are a number of conditions that must be met in order to use this method:
How do I report this?
Personal use of a company vehicle is reported on Form W-2 in boxes 1, 3, 5 and 14 and on Form 941 on line 2, 5a and 5c.
As a friendly reminder, you also need to watch if your state reports these wages in box 16.
Here are a few more helpful tips when you are determining which method to use to calculate the use of a personal vehicle:
We’re just barely scratching the surface of personal use of company vehicles. For more information, check out our W2/1099 Year End Planning book.
Still confused? Just ask. We’re here to help.