In some situations, it makes sense for a company to give its employee's company owned or leased vehicles for their everyday use. If you’re an employee who drives an employer-provided vehicle, you should be aware of some tax implications if you also use the vehicle for personal use. If you are an owner and employee, these rules apply to you as well.
When an employer provides a vehicle to an employee (or owner) with no restrictions on the use, it is assumed that the vehicle will be driven for both business and personal reasons (commuting to and from work, for business during work days, and personally on the weekends and outside of work hours). Personal use of the company-provided vehicle is considered to be a fringe benefit for the employee – a form of “non-cash” compensation. Because of this, the employer should report the value of the employee’s personal use of the vehicle in the employee’s wages (included in box 1 on Form W-2).
This concept is important for small businesses to keep in mind. An S Corporation with two shareholders, for example, each using a company-owned vehicle, must account for the business versus personal use of the vehicles. If the S Corporation purchased or leases the vehicles, depreciates them and takes deductions for all related expenses, the employee-shareholders are receiving a fringe benefit for the personal use of the vehicles. The employee-shareholders should be including the value of that personal use as income on their personal returns.
The rule is for the business to include only the value associated with the employee’s personal use on their W-2. In this case, the employee-shareholder would only be included in income the amount associated with their personal use and, therefore, would not deduct any expenses for business use on his or her individual return (unless there are some additional expenses unreimbursed by the employer). The IRS publishes a table to determine the value of the personal use; the Annual Lease Value Table. Please contact us for a copy.
The personal use amount should be included in the W2 and is subject to federal and state tax withholding and other usual payroll taxes such as Social Security.
Please contact our office for further assistance with calculating the personal use amounts.
Roeser Accountancy Corporation
December 2017