Reporting personal use of employer-provided vehicles
Posted On: 1-25-2017 | Posted By: Debra Harrington, CPA
Does your organization provide vehicles for employees to use for business? Does the employee also drive the vehicle for personal use? If so, you’ve got an additional administrative issue to contend with each new year: generally, the value of an employer-provided vehicle is a fringe benefit which might need to be included as employee compensation on a Form W-2.
What personal use is, and what it’s not
“Personal use” of an employer-provided vehicle could include commuting between a personal residence and work location, vacation or weekend use, or use by someone who is not an employee.
There are some situations in which use of the vehicles does not need to be reported as a fringe benefit.
- The vehicle is used 100% for business purposes.
- The personal use too small to account for (de minimis use).
- The employer has a written policy against personal use of the vehicle.
It is very important that employees keep track of their business versus personal use of company vehicles. Important information for the employee to record includes:
- the date of each use;
- mileage per trip;
- business purpose of each trip;
- a description of the destination or benefit derived; and
- total mileage for the year.
If substantiation is not fulfilled, the entire value of the vehicle must be included in the employee’s W-2 compensation.
Methods for valuing personal use
There are several methods for valuing personal use of a vehicle, and each method is subject to certain restrictions. Which method an employer utilizes depends on several factors, including the type of vehicle, its specific use, mileage and organizational policies and procedures.
- Automobile lease valuation. There are tables to calculate this based on percentage of personal use and the vehicle’s fair market value.
- Cents-per-mile rule. For 2016, it was 54 cents multiplied by the personal miles driven. The mileage rate for 2017 is 53.5 cents per mile.
- Commuting valuation method. $1.50 for each one-way trip between home and work.
However you choose to value the personal use, the amount is subject to employment taxes and must be reported on the employee’s Form W-2. The IRS provides more information on treatment of employee fringe benefits in Publication 15-B.
If you have additional questions about employer-provided vehicles or need assistance in calculating how or what should be included in employee income, contact your WK advisor at (573) 442-6171 or (573) 635-6196.