Valuing Your Employee's Personal Use of Business Auto

       Whether your company supplies business autos to employees as "perks" or as necessary tools to help them get their work done, their personal use of the auto has tax implications for them and for you. That's because an employee's personal use of a company auto must be treated as non-cash fringe benefit income that's subject to social security taxes. Fortunately, the tax rules give you some flexibility in valuing personal usage of the company car. You can choose from among four valuation methods: the general fair market value method, which is based on what a person would pay locally to lease a comparable auto for a period of time comparable to the period of time the employee has use of the car;

methods; the lease value method, which assigns an IRS-determined annual lease value to the auto depending on its value when first provided for the employee's personal use;

the mileage rate method, which values each year 2001 personal-use mile at 34.5 cents, and at 36.5 cents beginning January 1, 2002; or the $1.50 per one-way commute method.

       The first two methods can be used for any auto and any employee. The mileage-rate method can be used only if the car's fair market value doesn't exceed an annually adjusted figure (last year's was $15,500), and is regularly used in your business, or is driven at least 10,000 miles during the year and used primarily by employees. The $1.50 commute method applies only to an auto used in your company's business, and only if the employee isn't highly paid, a company officer or director, or a more than 1% company owner.

       Which of the first three methods results in the lowest personal use valuation and the lowest tax bill for employees? The answer will depend on factors such as the number of annual personal miles, value of the car, and the ratio of personal miles to total miles. We can help you through the maze of these rules, and also show you which of them will cause the least amount of paperwork. Please do not hesitate to call us for an evaluation.

Copyright © 2003-2005 Cousins Accounting. All Rights Reserved

[Home] [Services] [Six Questions] [Contact Us] [Tax Notes] [Section 1] [Section 2] [Section 3] [Section 4] [Section 5] [Section 6] [Section 7] [Section 8] [Section 9] [Section 10] [Section 11] [Section 12] [Section 13] [Section 14] [Section 15] [Section 16] [Section 17] [Section 18] [Section 19] [Section 20] [Section 21] [Section 22] [Section 23] [Section 24] [Section 25] [Section 26] [Section 27] [Section 28] [Section 29] [Section 30] [Section 31] [Section 32] [Section 33] [Section 34] [Section 35] [Section 36] [Section 37] [Section 38] [Section 39] [Section 40] [Section 41] [Section 42] [Section 43] [Links]