In many businesses, it’s common for management to allow employees and contractors to use company cars for personal use. While this practice is normal and allowed, the IRS does require that personal use be treated as a taxable fringe benefit.
The IRS has released new guidelines for choosing which method companies can use to determine how much to tax employees and contractors for personal use of a company car. Depending on the value of the vehicle, employers can use a cents-per-mile calculation to determine the tax.
According to information published in Accountancy Age, for 2010, the fair market value of an automobile must be $15,300 or less for organizations to calculate the taxable personal use of a vehicle using cents-per mile. The fair market value limits for trucks and vans are $16,000 and $21,000 respectively.
These values are all increases from the 2009 figures, which reflected a drop in the automotive component of the Consumer Price Index.
If the fair market value of the vehicle exceeds these maximums, then the IRS has a series of other methods companies can use to determine how much the employee or contractor should be taxed. These methods include special valuation rules, general valuation rules, and commuting valuation rules.
