The use of a company owned or leased vehicle, like most employee fringe benefit, is generally taxable unless specifically excluded by law. Taxable fringe benefits are subject to employment taxes and must be included in the employee’s Form W-2, Wage and Tax Statement. There are special rules to withhold, deposit and report the employment taxes on these benefits.
If you provide a vehicle for an employee’s use, the amount excludable as a working condition fringe is the amount that would be allowable as a deductible business expense if the employee paid for its use. To qualify as an excludable working condition fringe, employees must substantiate their business use through adequate documentation
The general way to determine the value of a fringe benefit is to measure its fair market value: The price an employee would incur to buy or lease the benefit in an arm’s-length transaction. To determine the value of an employer-provided vehicle, you can use one of three valuation rules:
- The Vehicle Cents-Per-Miles Rule. Multiply the miles the employee drove for personal use by the standard rate.
- The Commuting Valuation Rule. Multiply the number of times the employee used the vehicle for commuting times $1.50 if the employer meets all the requirements for using this method.
- The Automobile Lease Value Rule. Use the annual lease value to determine the value of the employee’s personal use of the vehicle.
There are specific requirements that must be met to use these special valuation rules. For example, to use the commuting valuation rule, you must provide the employee with a vehicle for commuting for bona fide non-compensatory business reasons.
For information on the taxation of automobiles, the automobile valuation rules, and the treatment of fringe benefits, go to Publication 15-B, Employer’s
Tax Guide to Fringe Benefits.