News & Announcements

Determining the Value of Employees’ Personal Use of Company Vehicles

Posted Tuesday, September 10, 2019 6:27 am

The IRS has issued a proposed rule regarding the valuation of employees’ personal use of company vehicles.

If an employer provides an employee with a vehicle that is available to the employee for personal use, the value of the personal use must be included in the employee’s gross income.  Generally, the amount is determined by reference to the vehicle’s fair market value (“FMV”).  However, regulations provide special valuation rules, including the fleet-average valuation rule and the vehicle cents-per-mile valuation rule.

Fleet-Average Valuation Rule and Cents-Per-Mile Rule

Under the fleet-average valuation rule, the value of the personal use of an employer-provided vehicle is the portion of the Annual Lease Value determined under the regulations, which is calculated based on the average of the fair market values of all the automobiles in the fleet.

Under the cents-per-mile rule, the value of the personal use may be determined based on the applicable standard mileage rate (58 cents per mile for 2019) multiplied by the total number of miles the vehicle is driven by the employee for personal purposes.  An employer must adopt the vehicle cents-per-mile valuation rule for a vehicle to take effect by the first day on which the vehicle is used by an employee for personal use (or if another special valuation rule called the commuting valuation rule is used when the vehicle is first used by an employee for personal use, on the first day the commuting valuation rule is not used).  Once the vehicle cents-per-mile valuation rule has been adopted for a vehicle by an employer, the rule must be used by the employer for all subsequent years in which the vehicle qualifies for use of the rule, except that the employer may, for any year during which use of the vehicle qualifies for the commuting valuation rule, use the commuting valuation rule with respect to the vehicle.

Maximum Values

Employers may only utilize those special value rules if the vehicle’s FMV on the first date the automobile is made available to the employee for personal use is less than a maximum amount set in the regulations.  For 2017, the maximum value for use of the fleet-average valuation rule was $21,100 for a passenger automobile and $23,300 for a truck or van.  The maximum value for use of the vehicle cents-per-mile valuation rule was $15,900 for a passenger automobile and $17,800 for a truck or van.

Under the proposed rule, the values to be used under both the fleet-average and cents-per-mile valuation methods, are $50,000 for 2018 and $50,400 for 2019.

Transition Rules

The proposal also provides transition rules for certain employers to take advantage of the higher base values for 2018 and 2019.

Any employer that did not qualify to use the fleet-average valuation rule prior to January 1, 2018 because the vehicle’s FMV exceeded the maximum value requirement, may adopt the fleet-average valuation rule for 2018 or 2019, provided the FMV does not exceed $50,000 on January 1, 2018 or $50,400 on January 1, 2019.

An employer that did not qualify to adopt the vehicle cents-per-mile valuation rule because the vehicle’s FMV exceeded the maximum value, may first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 taxable year based on the new maximum FMV for 2018 ($50,000) or 2019 ($50,400).

If the employer first used the commuting valuation rule when the vehicle was first used by an employee for personal use and the employer did not qualify to switch to the vehicle cents-per-mile valuation rule on the first day on which the commuting valuation rule was not used because the vehicle’s FMV exceeded the maximum value, the employer may adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year based on the new maximum FMV for 2018 ($50,000) or 2019 ($50,400).

The proposed rule is available here.

Comments

Comments on the proposed rule and requests for a public hearing may be electronically submitted via the Federal eRulemaking Portal at http://www.regulations.gov (indicate IRS and REG-101378-19), and must be received by October 22, 2019.

Feature of the Month:

EEOC’s Pay Data Collection: An EEO-1 Overview

Learn more about the EEO-1 Component 2 compensation data collection, due September 30.

Learn More

Subscribe to Our Training Events Updates

Subscribe to our training events notices to get in early on upcoming events.  Notices will arrive via email every Wednesday.

Back to top

Email Sign Up

Subscribe

If you are a member, please login below to manage your subscription. Otherwise, click "Continue to Subscribe"

Login

Continue to Subscribe

Subscribe

Fill out the fields below to receive HEC emails.


How did you hear about HEC?

I would like to receive the following:

HR News Digest (weekly)
Training Events Notices (weekly)