Tax Update: What Should Employers Know about Vehicle and Transportation Benefits?July 29, 2019
Does your company offer company-provided vehicles or reimbursement of parking and commuting expenses? The tax rules for these benefits have changed thanks to the TCJA. Here’s what you need to know.
Competitive salaries and bonuses are key ways to attract and retain skilled workers, but employees also value the “perks” your company offers. Some of the most common — and valued — perks are company-provided vehicles and reimbursement of parking and commuting expenses. The tax rules related to these benefits changed under the Tax Cuts and Jobs Act (TCJA). Here’s what employers should know.
When an employee uses a company vehicle for business purposes, it’s a working condition fringe benefit. So, the value of using the vehicle isn’t included in the employee’s income.
However, the value of an employee’s personal use of a company vehicle must be included in the employee’s income — and it’s subject to tax and withholding. Examples of personal use include miles driven on weekends, commutes to and from work, and use by family members.
The value that’s reported as taxable income may be based on:
- The fair market value that an employee would pay a third party to lease the same or similar vehicle on the same or comparable terms in the geographic area where the employee uses the vehicle,
- The amount of each one-way commute, from home to work or from work to home, multiplied by $1.50,
- The business standard mileage rate (58 cents for 2019, less up to 5.5 cents if the employer doesn’t provide fuel) multiplied by the total miles the employee drives the vehicle for personal purposes, or
- The annual lease value of the vehicle (specified by an IRS table and subject to a fuel adjustment) multiplied by the percentage of personal miles out of total miles driven by the employee.
Under prior law, the maximum value to qualify for the cents-per-mile rule in 2017 was:
- $15,900 for a passenger automobile, and
- $17,800 for a truck or van.
For employers with more than 20 qualifying vehicles, the maximum value for the fleet-average value rule for 2017 was $21,100 for a passenger automobile and $23,300 for a truck or van.
Under the TCJA, the base values were raised significantly to $50,000 for both the cents-per-mile and the fleet-average value rules, effective for the 2018 calendar year. Starting in 2019, this amount will be adjusted annually for inflation.
For vehicles and automobiles first made available to employees for personal use in calendar year 2019, the inflation-adjusted maximum value is $50,400. We can help you determine the appropriate valuation method for your company’s circumstances.
Transportation Fringe Benefits
Under prior law, employers could deduct expenses for certain transportation fringe benefits — and employees could exclude up to $250 a month (adjusted annually for inflation) in transportation fringe benefits. These rules applied to three types of benefits:
- Mass transit passes,
- Commuter highway vehicle passes, and
- Qualified parking fees.
The TCJA changes the tax rules for employers beginning in 2018. In general, no deduction is allowed for directly paying these transportation-related costs or for reimbursing employees for these expenses. However, an exception may be allowed for transportation payments made for an employee’s safety.
For example, companies may be allowed to deduct transportation costs when an employee works late at night and it’s unsafe to take public transportation. A deduction also may be permitted for employees who use special vehicles (for example, armored cars) or chauffeurs for safety reasons.
Under the TCJA, employees still may exclude up to $250 a month (adjusted annually for inflation) in transportation fringe benefits. For 2019, the inflation-adjusted amount is $265 per month.
Let’s Review Your Company’s Compensation Plan
Many industries are experiencing a shortage of skilled workers. Your company’s compensation package, including its benefits, can give you a competitive edge in the labor market. But it’s important to know the after-tax costs of benefits when deciding what to offer.
The tax rules regarding company vehicles and transportation costs have changed. Contact our tax experts to comply with the changes and evaluate what’s right for your situation.