What comes to mind when you read the phrase, Fringe Benefits? For most, they immediately think of perks received for different jobs. No matter what your initial thought is, most employees are happy to receive Fringe Benefits from their job. Within the tax code the IRS gives room for many fringe benefits that employers seeking to care for their employees can take advantage of.
Unfortunately, the joy of receiving fringe benefits can quickly turn sour if both employers and employees are unaware that some fringe benefits are not tax free. The IRS designates a difference between a fringe benefit and a tax-free fringe benefit; within the class of fringe benefits some are considered taxable compensation while others are not. One such taxable fringe benefit is Personal Use of a Company Car.
Although it is legal for a company to buy a car and allow employees to use the car, the employees personal use of said car is a taxable fringe benefit. Every employee who has use of an employer owned car must report the personal use of the vehicle to the employer to be added to their W2 as taxable income.
There are a few ways to determine the taxable income on the personal use of a vehicle but in our experience, most church provided cars are used for both personal and company business. We would suggest that most churches could use the Annual Lease Valuation Principle laid out below to figure out the Personal Use Value to be added into their tax income.
Under the Annual Lease Valuation Principle, the amount to be added to an employee’s income equals the amount a person would have to pay to lease a comparable vehicle (Total Value for Allocation), multiplied by the percentage of total vehicle miles that were of a personal nature (Percentage of Personal Usage). To find this amount use the following steps:
Find the Fair Market Value (FMV) of the Vehicle.
Using the FMV of the vehicle, find the Annual Lease Value using Publication 15-B.
Figure out the total miles driven in the car for the past year.
Using the tracked Personal Use Miles, divide the Personal Use Miles by the Total Miles driven in the year to figure out the Percentage of Personal Usage (PPU).
Multiple the Percentage of Personal Usage by the Annual Lease Value.
Finally, calculate the Fuel Add (.055 multiplied by total personal miles driven in the year) and add to the Personal Use and Annual Lease Value product to find your Personal Use Taxable Income.
This total becomes the value of Personal Use added to Box 1 as income and included in Box 14 of the W2.
Use this Calculation Form to find your Personal Use Taxable Income.
It is important to note that employees should keep adequate and accurate records to show their personal and business use of the car. These records should list the mileage, the date and place of travel, and the business purpose of said travel.
If navigating Personal Usage of a Company Car seems daunting, Wisdom can help. Our Wisdom Payroll Team has experience navigating PPU and are clergy payroll experts. Check out our Wisdom Payroll Service and then Contact Us for a complimentary consultation.