Employee's personal use of an employer-provided vehicle is a taxable fringe benefit to the employee. The taxable benefit is subject to income tax, social security tax and medicare tax withholding and is processed through payroll with regular monthly earnings. As a result, the employee's earnings statement reflects additional income, tax withholdings and reduced net earnings. The additional taxable income and tax withholdings attributable to the personal use of a vehicle is also included in the employee's Form W-2.

CALCULATION OF TAXABLE BENEFIT: The Internal Revenue Service (IRS) generally allows the following methods to calculate the value of personal use of an employer-provided vehicle. Each method has different rules prescribing when and how to use them. Consult IRS Publication 535 for specific instructions.

GENERAL VALUATION RULE: Benefit value is the amount the employee would have to pay a third party to lease the same or similar vehicle on the same or comparable terms in the same geographic area where the employee uses the vehicle.
ANNUAL LEASE VALUATION RULE: Benefit value is measured by an Annual Lease Value Table based on the fair market value (FMV) of the vehicle. Although these values are calibrated for an annual benefit, it is acceptable to prorate based on monthly usage. Personal usage is based on a proration of personal miles to total miles. The annual lease value does not include fuel, so if the employer also provides fuel, an additional amount must be added to the benefit value.
CENTS-PER-MILE RULE: Based on a standard mileage rate set by the IRS. This method can not be used for "luxury" vehicles. The IRS defines a luxury vehicle as one with a FMV in excess of a certain amount which is indexed annually. The value of fuel is included in the standard mileage rate, so if the employee pays for fuel the valuation rate may be reduced by an amount set by the IRS.

For more information pertaining to payroll, please contact the Payroll office in Human Resources.

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