With the dropping temperatures, fall is now upon us. As the holiday season fast approaches, we are writing to remind you about the tax reporting required for personal use of company provided vehicles.
Law
Fringe benefits provided to an employee are taxable to the employee and must be reported in his/her income unless the law specifically excludes the benefit. This rule includes the value of an employee’s personal use of an employer provided vehicle. The value of the benefit is included on the employee's Form W-2 as additional compensation and is subject to withholding and applicable payroll taxes.
Personal Use of an Employer Provided Vehicle
Personal use of an employer provided vehicle includes the following:
- The employee’s commute from home to work on a regular basis
- Use of the vehicle for personal errands
- Trips unrelated to the organization’s purpose, work, or trade
- Use on a vacation or weekends
- Use by someone other than the employee of your company
Accountable versus Non-accountable Plan
An "accountable plan" is defined as documentation provided by the employee detailing how the allowance was used for business purposes (car payment, insurance, gasoline.) In other words, this documentation substantiates the expenses. By default, a non-accountable plan is any plan that does not qualify as an accountable plan. A detailed discussion of accountable versus non-accountable plans is beyond the scope of this letter, but we would be happy to discuss it further should you like more information.
Expenses paid under an “accountable plan” are deductible by the company and are not included in the income of the employee. For expenses paid under a “non-accountable plan” the employer is still entitled to a deduction (in the form of compensation and subject to applicable payroll taxes) but the employee must include the entire amount in income.
Required Action
To the extent that you have employees who have personal use of employer owned automobiles or that have received excess expense reimbursements, these amounts must be included in income. As always, if you would like for us to assist with the calculation of the personal use of auto charge back for each employee affected, please complete the 2021 Personal Use of Auto Worksheet and return it to our office.
If you have any questions or additional clarification is needed, please do not hesitate to contact your Rudler, PSC advisor at 859-331-1717.
RUDLER, PSC CPAs and Business Advisors
This e-Tip is presented by James Ray, CPA.
If you would like to discuss your particular situation, contact James at 859-331-1717.
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