From the Hotline: Company Cars as a Benefit
Question: Are company cars considered a non-taxable item if the lease and insurance are paid for by the employer?
Answer: The IRS has specific rules regarding whether or not a benefit should be taxed.
“Vehicle allocation rules: If you provide a car for an employee’s use, the amount you can exclude as a working condition benefit is the amount that would be allowable as a deductible business expense if the employee paid for its use. If the employee uses the car for both business and personal use, the value of the working condition benefit is the part determined to be for business use of the vehicle.
“However, instead of excluding the value of the working condition benefit, you can include the entire annual lease value of the car in the employee’s wages. The employee can then claim any deductible business expense for the car as an itemized deduction on his or her personal income tax return. This option is available only if you use the lease value rule (discussed in section 3) to value the benefit.
“Qualified non-personal use vehicles. All of an employee’s use of a qualified non-personal-use vehicle is a working condition benefit. A qualified non-personal-use vehicle is any vehicle the employee is not likely to use more than minimally for personal purposes because of its design. Qualified non-personal-use vehicles generally include all of the following vehicles.
- Clearly marked, through painted insignia or words, police, fire, and public safety vehicles.
- Unmarked vehicles used by law enforcement officers if the use is officially authorized.
- An ambulance or hearse used for its specific purpose.
- Any vehicle designed to carry cargo with a loaded gross vehicle weight over 14,000 pounds.
- Delivery trucks with seating for the driver only, or the driver plus a folding jump seat.
- A passenger bus with a capacity of at least 20 passengers used for its specific purpose.
- School buses.
- Tractors and other special-purpose farm vehicles.
- Bucket trucks, cement mixers, combines, cranes and derricks, dump trucks (including garbage trucks), flatbed trucks, forklifts, qualified moving vans, qualified specialized utility repair trucks, and refrigerated trucks.”