Company Vehicles and W-2 Compensation

Dear Friends,

The personal use of company cars by employees and owners must be treated as taxable compensation income (and as such, is subject to the normal payroll taxes).  In valuing this compensation, the general rule is the employee’s income is equal to what it would cost in an arm’s length transaction to lease a comparable vehicle for the time used for personal purposes.

The IRS also allows employers to use three simplified special valuation rules:

(1) the annual lease valuation method
(2) the cents-per-mile valuation method
(3) the commuting valuation method.

Beyond the advantage of simplicity, these special methods generally yield smaller taxable income numbers for employees’ personal usage than would be calculated by following the general rule.  This saves FICA taxes for the employer and income and FICA for the employee.

If you are using any of the three special methods mentioned above, we advise you to carefully review the regulations to make sure your Company is in full compliance.  If you wish, we would be happy to assist you in this process.

If you have any questions or want further information, please don’t hesitate to call our office at 724-731-0150.