Personal Use of Company Provided Vehicles
Corporate fringe benefits offer a unique means of differentiating your company’s culture from that of your competitors. One such benefit that acts as an attractive incentive for employees is the use of a company-provided vehicle. However, there’s a lot that goes into offering a company vehicle, including determining the guidelines around the employee’s personal use of said vehicle.
All miles driven in a company-provided vehicle are recorded as either business or personal. What constitutes business versus personal miles? Put simply, business miles are any miles driven for the need of the company and personal miles are any miles driven for the need of the employee. Examples of business miles include driving to a customer meeting, moving product, or setting up a temporary offsite station. Personal miles include driving to/from work, grocery shopping during lunch, or family outings in the company vehicle.
Whether or not a driver can use their company vehicle for personal use should be clearly outlined in the corporate policy. Although a company vehicle is offered as an incentive, there is still a small cost to the employee. Per the IRS, most fringe benefits are taxable and must be recorded by both the employer and employee. Currently, the average personal use charge is $132 per recording period. Recording periods are typically monthly, however the time period is up to the employer. The personal use amount is then reflected on each employee’s pay stub as well as on their W2 forms. This charge is very minimal in comparison to owning a vehicle outright, making the benefit very attractive to employees. Also, the personal use charge is an incentive to the company, as the charge is a small reimbursement for allowing employees to use their assets for personal trips.
The habit of completing logs every time you begin or end a trip is highly suggested. If trips go un-logged for too long it can be very difficult to keep accurate records. Per the IRS, if an employee fails to report mileage logs prior to tax reporting deadlines, all miles driven may be deemed as personal. In this case the employee can bring proof of business and personal miles when filing their income taxes, though there is no guarantee the reported mileage will be reversed.
Flora Richards-Gustafson suggests the following log items in her article Employee Responsibilities for Company Cars to ensure necessary data is captured: date, name, beginning location, the number of passengers, destination, starting odometer, and ending odometer. It’s also beneficial to record maintenance and fuel data if the employer does not have maintenance or fuel programs in place.
How are personal mileage charges calculated? Per the IRS’ annual publication Employer’s Tax Guide to Fringe Benefit, the charge is based on the lease value of the vehicle and fuel reimbursement. The IRS provides an annual lease value table to determine the value of the asset. This value includes maintenance and insurance costs, but not fuel costs. This enables you to calculate a monthly value and confirm the number of personal miles driven. The number of personal miles is then divided by the total miles and multiplied by 100 to obtain a percentage. This percentage is then multiplied by the monthly lease value. After this amount is clear, fuel reimbursement on personal miles can be calculated. The IRS allows fuel reimbursement at 5.5 cents per personal mile driven. Add the two amounts together for a total monthly personal use charge. To demonstrate:
- New vehicle IRS Fair Market Value between $26,000-$27,999
- Annual Lease Value is $7250
- Monthly Lease Value is $604.17
- Business: 963
- Personal: 278
- Total: 1241
- Personal miles/Total miles: 278 / 1241 *100 = 22.40%
- Monthly Lease Value x 22.40%: $604.17 * 22.40% = $135.33
- Fuel Reimbursement: $.055 * 278 = $15.29
- Lease Value + Fuel Reimbursement: $135.33 + $15.29
- Total Monthly Personal Use Charge: $150.62
Another option for determining a personal use charge is the cents-per-mile calculation. This option includes maintenance, insurance and fuel. Per the IRS’ publication, the current cents-per-mile charge is 54 cents. If you don’t provide fuel, this rate may be reduced by up to 5.5 cents for a total of $.485. The calculation is to multiply all personal miles by $.54 for a total monthly charge.
- Mileages: Business 963 & Personal 278
- Personal miles x $.54: 278 * .54
- Total personal use charge: $150.12
- If fuel is not provided: 278 * .485
- Total personal use charge: $134.83
To avoid potential headaches surrounding personal use charges, the employer should make sure to have a clear and concise policy in place. A concise policy, when paired with accurate and recent record keeping, results in a personal use program that is beneficial for employees and employers alike.