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The free use of a company car is one of the best perks an employee may receive as part of a compensation package. But the benefit to the employee isn't completely "free" under current tax law. Essentially, personal use of a company car is treated as a taxable noncash fringe benefit, subject to income tax obligations.
The IRS just announced a key valuation amount for 2019.
The maximum value of an employer-provided vehicle (including cars, vans and trucks) first made available to employees for personal use in calendar year 2019 for which either the vehicle cents-per-mile valuation rule or fleet-average valuation rule may be used is $50,400. (IRS Notice 2019-34)
If an employer provides a car to an employee that's available for personal use, the value of the personal use must generally be included in the employee's income and wages. The personal use may be valued using the cents-per-mile or fleet-average valuation rules for the 2019 calendar year.
Due to tax law changes in the Tax Cuts and Jobs Act (TCJA), the maximum dollar limitations on the depreciation deductions for passenger automobiles significantly increased and the way inflation increases are calculated changed. Earlier IRS guidance (Notice 2019-8) stated that the IRS and the Treasury Department intended to amend regulations to incorporate a higher base value of $50,000 to be adjusted annually. This amount applied for 2018, according to Notice 2019-8. (The maximum amount provided currently by regulation is $16,500, adjusted annually for inflation.)
The new IRS notice provides that for 2019, the maximum fair market value (FMV) of a vehicle (including cars, vans and trucks) for use with the vehicle cents-per-mile and fleet-average valuation rules is $50,400.
Because current regulations haven't yet been updated to reflect the changes under the TCJA, the IRS provides relief to taxpayers in the form of interim guidance for 2019 in the notice. The IRS intends (along with the Treasury Department) to revise the regulations.
The IRS anticipates that when the regulations have been amended, the maximum value for use of the cents-per-mile and fleet-average valuation rules will be published annually with the standard mileage rates for business, charitable, medical and moving expense purposes.
Until revised final regulations are published taxpayers may rely on the interim guidance provided in Notice 2019-34. The IRS is requesting comments on the new guidance by July 29.
For some employers, a company-provided car is a way to attract and retain key employees. But it's important to address all the payroll tax complexities relating to the personal use of a vehicle. With assistance from your tax and payroll advisors, employers can adhere to the tax law guidelines and meet all the reporting requirements.
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