Tax Implications – Employee Use of Employer-Provided Vehicles for Personal Commuting
Evan J. Gautier
Daniel C. Gavilanes
It is not uncommon for employees who use employer-provided vehicles during their workday, to also use the employer-provided vehicles for commuting to and from their work location, and/or to continue using the employer-provided vehicle for personal use during non-work hours. In general, employee use of employer-provided vehicles after working hours may subject employees to taxable wages in the form of additional compensation, or “fringe” income; notwithstanding situations where the employee is generally on-call, and/or is expected to respond to emergency situations from their home or other non-work locations.
In general, the value of an employee’s use of an employer-provided automobile is considered to be a fringe benefit. To the extent the vehicle is used for business purposes, the value of the business use of the vehicle is deemed a “working condition fringe benefit” and therefore, does not constitute compensation to the employee; so long as the business use of the vehicle is adequately substantiated. However, an employee’s personal use of an employer-provided vehicle is generally not considered a “working condition fringe benefit” and therefore is generally considered income taxable to the employee. One exception to this rule applies in the case of an employee’s use of an employer-provided vehicle which is a “qualified nonpersonal use vehicle.” A qualified nonpersonal use vehicle is a vehicle that an employee is not likely to use more than minimally for personal use because of its design. For example, clearly marked police or fire vehicles, cargo vehicles including some trucks or vans with a loaded gross vehicle weight over 14,000 pounds, cement mixers, dump trucks, forklifts, delivery trucks with seating only for the driver, flatbed trucks, and/or passenger and school buses.
Alternatively, if the employer-provided vehicles are not qualified nonpersonal use vehicles, the employer will need to value the personal commuting use of the vehicles and include it as additional wages paid to its employees. Here, the value of an employee’s personal use of an employer-provided vehicle will be treated as additional compensation, which is generally subject to all typical employment taxes and withholdings. There are several valuation methods that can be used for this purpose. One such method, the Commuting Valuation Rule, values the commuting use of an employer-provided vehicle at $1.50 per one-way commute (e.g. from home to work or from work to home). This valuation would also include the value of any goods or services directly related to the vehicle, such as fuel. The Commuting Valuation Rule may only be used if the following criteria are met by the employer and employee with respect to the vehicle:
- (a) The vehicle is owned or leased by the employer and is provided to one or more employees for use in connection with the employer’s trade or business and is used in the employer’s trade or business;
- (b) For bona fide noncompensatory business reasons, the employer requires the employee to commute to and/or from work in the vehicle;
- (c) The employer has established a written policy under which neither the employee, nor any individual whose use would be taxable to the employee, may use the vehicle for personal purposes, other than for commuting or de minimis personal use (such as a stop for a personal errand on the way between a business delivery and the employee’s home);
- (d) Except for de minimis personal use, the employee does not use the vehicle for any personal purpose other than commuting; and
- (e) The employee required to use the vehicle for commuting is not a “control employee” of the employer.
If employer-provided vehicles are qualified nonpersonal use vehicles, the employees’ commuting use of those vehicles could be excluded from the employees’ income. Alternately, for those vehicles that are used for commuting purposes and are not qualified nonpersonal use vehicles, the employer will need to value the personal commuting use of the vehicles and include it as additional wages paid to its employees.
Please feel free to contact the authors or your regular counsel with any questions you might have regarding this EAC Update.
Reprinted with permission from AALRR.