Perhaps neither you or the employer understood at the time that an employee cannot give an employee a tax free "gift", whether money or free personal use of a vehicle, or anything else, and now the employer is attempting to correct this in the cheapest way possible to avoid having to amend 2016 and pay back tax. Anything that an employer gives to an employee is taxable with certain exceptions. As others have said, the correct way is to issue a corrected 2016 W-2 and for you to amend 2016 and pay the additional tax on an amended return, but it would probably be a wash whether paid on a 2017 return or an amended 2016 return.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
