Personal use of a company vehicle occurs when an employee uses a company vehicle for any purpose that is unrelated to the employer’s trade or business. The cost of commuting from the employee's home to his or her regular place of work, such as an office, and vice versa is considered a personal expense. It is likely you would use the cents per mile (discussed below) to determine your income.
If you and a coworker are sharing the vehicle and all commuting miles, you could split the income in any way agreed upon as long as 100% of the income is reported. If this is reported on your W-2, you will not have any option. You will have to report the income as stated on the document.
IRS rules require employers to impute taxable wage income to employees for employees’ personal use of company vehicles. Employers have several methods to choose from in determining the value of such personal use. The two special methods that are commonly used for calculating the value of such personal use are discussed below.
1. Cents-Per-Mile. Employers may use the cents-per-mile method if the employer reasonably expects the vehicle to be regularly used by employees in the employer’s trade or business throughout the year (or such shorter period as the vehicle may be owned or leased by the employer), or the vehicle is at least driven 10,000 miles.[5] If an employer wants to use the cents-per-mile rule, they must begin using it as of the first day on which the vehicle is used for personal employee use and generally must use it for all subsequent years that it qualifies. If the requirements for the cents-per-mile method are satisfied, then an employee’s taxable amount for personal use of an employer-provided automobile could be calculated by multiplying the standard mileage rate by the total miles the employee drives the vehicle for personal purposes. For 2019, the IRS standard mileage rate for the use of cars, vans, pickups or panel trucks is 58 cents per mile driven for business use. However, employers should not also reimburse employees for fuel if they reimburse employees using the standard mileage rate, as that rate includes fuel. Any amounts paid to the employer for personal use of the automobile or excluded under a different Code section would reduce the amount taxable to the employee.
2. Average Lease Value Rule (including Fleet-Average Value). If the employer provides a vehicle to an employee for an entire year, the value of the benefit that is included in the employee’s income is the Annual Lease Value (ALV) of the vehicle.[6] As discussed in greater detail below, the amount of the imputed income for this benefit is calculated by first determining the FMV of the vehicle as of the first day that the vehicle is made available to the employee and then using the table in the regulations[7] to find the ALV that corresponds to the vehicle’s FMV.
- Determining FMV. Generally, the FMV is the vehicle’s purchase price, including all amounts attributable to the purchase, such as sales tax and title fees.[8] Alternatively, the FMV may be determined by using the vehicle’s retail value as reported in a nationally recognized pricing source that regularly reports new or used automobile retail values.[9] Other special rules may be used to determine FMV in the case of employer-leased automobiles.[10]
- Determining ALV. Once the vehicle’s FMV has been determined, employers use the ALV table in the regulations to determine the ALV that corresponds to the vehicle’s FMV. The amount of the ALV that is included in the employee’s income is the portion relating to the availability of the vehicle for commuting and other personal use. Mileage records must be kept to determine what portion of the total automobile use is for personal purposes. Maintenance and insurance are included in the ALV.[11] However, fuel, whether furnished in kind (as from the employer’s gas pump) or by reimbursement, is not included.[12] Special rules are available for valuing fuel furnished by the employer and used by the employee for personal purposes.
- Fleet-average valuation rule. An employer with 20 or more vehicles may average the FMV of all fleet automobiles that do not exceed the base value in the regulations, as indexed for inflation. The ALV for vehicles in the fleet must remain in effect for a period that begins with the first January 1 that the fleet-average-value rule is used and ends on December 31 of the subsequent calendar year. The value is calculated as of the first January 1 of such period. Employers may cease using the fleet-average value rule as of any January 1.[13]
- General valuation principles. If the valuation rules discussed above cannot be used, the value of the employer-provided vehicle may be determined under general valuation principles. That value is the FMV that an individual would pay to lease such vehicle in an arm’s-length transaction in the same geographic area under similar or comparable conditions
Personal Use of Company Vehicle
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