Does My Employer Have to Include My Car Allowance in My Salary?
A company car allowance may provide you the use of a business-owned vehicle when making trips for business purposes, or simply as a fringe benefit of your position. How your employer chooses to report your car allowance determines whether this benefit must appear as part of your salary and as taxable income with the IRS.
Other People Are Reading
-
Personal Company Car
-
If your employer extends you the exclusive use of a company car as part of a fringe benefits package, your employer must include your monthly car allowance as part of your salary. According to the IRS, your employer must include the allowance when reporting your salary because the allowance is taxable income. Your employer must also report your car allowance on your W-2 form for tax filing purposes at the end of the year. This reporting does provide you with the benefit of deducting up to 50 percent of your business-related auto expenses, including miles driven for work, from your federal taxes.
Reimbursing Travel Expenses
-
Alternatively, your employer may choose to reimburse you for your travel expenses, including business use of your automobile. Your employer does not have to include reimbursed expenses in your salary or your W-2 if the company uses an accountable plan for determining your fringe benefits. An accountable plan is a system of reimbursement where you report all your eligible business expenses to your employer within a reasonable amount of time and provide proof of those expenses. You must return any excess reimbursement amounts to your employer immediately.
-
Nonaccountable Plan Rules
-
A nonaccountable plan is a fringe benefit reimbursement system that doesn't meet one of the reporting conditions of an accountable plan. For example, if your company doesn't require receipts for business expenses or permits you to keep excess reimbursements of cash. According to IRS Publication 463, if your employer uses a nonaccountable plan for your car allowance benefit, the business must report your car allowance as part of your salary. This includes listing your car allowance as income on your W-2 form for tax filing purposes.
Per Diem Fringe Benefits
-
A per diem fringe benefit is a daily cash amount your employer extends to you to make business related purchases, including fueling a company car or purchasing meals. The IRS requires your employer to include your per diem -- including any daily car allowance -- as part of your salary if the employer doesn't use an accountable plan for reporting business expenses. This means you may owe taxes on your per diem benefit at the end of the year, depending on the accounting system your employer uses.
-
References
- Photo Credit Digital Vision./Photodisc/Getty Images
