Income Tax on Company-Provided Cars

A company-provided vehicle might provide significant value.

off-road vehicle image by goce risteski from

With the significant expense that a vehicle presents, both in the initial purchase and its upkeep, a company-provided vehicle provides a significant benefit to those who receive it from their employers. The IRS also recognizes this value, and expects to collect its share of this non-salary compensation. Still, paying the taxes on the value of this benefit is less expensive than paying for a vehicle. The value of a company vehicle is reported to you as part of your taxable income own your annual form W-2, and may be calculated using one of two methods.

Fair-Market Value

The fair-market value of a vehicle as a benefit is determined by what an employee would pay a third party to purchase the benefit at an arms-length transaction. This is a transaction in which neither party has any reason to give a special deal. Basically, this would be what it would cost the employee to lease the vehicle for a comparable term, such as for one year. The IRS provides a table in Publication 15-B to help with this calculation.

Cents-Per-Mile Method

Employers can use the cents-per-mile method to assign value to the benefit of a company vehicle. To use the cents-per-mile method, the employee and company must keep careful records of the employee's use of the vehicle, both business and personal. Personal-use miles are multiplied by the IRS standard rate, currently 55.5 cents per mile as of 2012, to arrive at the taxable value.

Included in Cents-Per-Mile

Fuel is included in the cents-per-mile calculation. If you do not receive fuel as part of the employee benefit, the company may reduce the value of the cents-per-mile calculation by no more than 5.5 cents per mile. The value of maintenance and insurance is also included in the 55.5 cents per mile standard mileage rate.

Business Use

With either valuation method, the company may deduct from the value the amount used for business use. If you use the vehicle to call on customers or perform company duties, this use is not taxable to you. If the company does not deduct this value, you may keep records, and claim the business use of the vehicle as a miscellaneous employee business expense. You do this by itemizing your deductions, and this expense is subject to a 2 percent minimum of your adjusted gross income.