Personal
Use of Company Vehicles
A number of taxation rules apply if an employee drives a
company vehicle for personal use. The basic rule is that personal use of this
asset is taxable income to the employee. The following rules apply:
-
If the vehicle is a specialty one, such as a garbage truck,
then there is an assumption that no personal use will occur, so using this type
of vehicle will never result in taxable income to the employee.
-
If the employer requires the employee to use the vehicle to
commute to work, an enforced company policy prohibits the vehicle from all other
personal use, and the employee is not a highly compensated employee, director,
or officer, then the employee will be charged $1.50 of taxable income for each
commute in each direction.
-
If the employee can substantiate the amount of business use
to which the vehicle was put, including dates, miles, and the purpose of each
trip, all remaining miles are assumed to be for personal use. In this scenario,
it is possible to determine the income charged to the employee by multiplying
the IRS-designated rate of 34.5¢ per mile (which is revised annually) by the
number of miles of personal use, less 5.5¢ per mile if the employee pays for all
fuel. This approach is only allowable if the
fair market value of the vehicle is approximately $15,000 or less (also revised
annually) and the car is driven at least 10,000 miles per year in total. If the
situation exceeds these restrictions, then the alternative approach is to
multiply the proportion of personal miles used on the vehicle by its annual
lease value (which is a percentage of a vehicle's fair market value, as supplied
by the IRS) and record this amount as personal income to the
employee.
Example. The president of Hot Rod Custom
Modifiers, Inc. drives a company-owned Ferrari. The value of the car is clearly
beyond $15,000, so he must record as personal income the proportion of his
personal use of the car multiplied by its annual lease value of $28,000. The
proportion of his personal use was 78 perczent, so the company must record 78
percent of $28,000, or $21,840, as his gross income associated with his use of
the car.
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