What Is the Income Value of a Company Car?
The income an employee receives from an employer is not limited to the actual cash pay they get in the form of paychecks. Many employers provide fringe benefits that the Internal Revenue Service treats as taxable income. The personal use of a company-provided vehicle is a common taxable fringe benefit. The income value of a company car will vary depending on how you use the car and the valuation method used to calculate the value of the benefit.
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Fair Market Value
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The general rule for any taxable fringe benefit is that the income value of the benefit is equal to the fair market value (FMV) of the benefit. The IRS states that the FMV of a benefit is the "amount an employee would have to pay a third party in an arm's-length transaction to buy or lease the benefit." In other words, if your company provides you a fringe benefit that you would cost you $5,000 to purchase on your own, the benefit would increase your income by $5,000. There are, however, special rules for determining the value for company cars.
Cents-Per-Mile Rule
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The cents-per-mile rule is a way that employers can determine the value of a car provided to an employee. The IRS states that employers can use the cents-per-mile rule if at least half of a car's use is for business purposes and the vehicle is driven at least 10,000 miles a year. Under the rule, the value of using a company car is equal to the total number of miles you drove the car for personal purposes, multiplied by a standard mileage rate that varies from one year to the next. The mileage rate is 51 cents per mile in 2011, according to the IRS.
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Commuting Rule
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If you use a company vehicle for the purpose of commuting, the income value of the benefit may be determined with the commuting rule. The IRS states that the fringe benefit value of a company car used for commuting is equal to $1.50 for each one-way commute. In other words, if you drive to and from work in a company car, the value of the benefit is $3 a day. This rule does not apply if you use the car for personal purposes other than commuting.
Annual Lease Value Rule
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The annual lease value rule is another way that employers can calculate the benefit value of a company car. Under this rule, the value of the benefit is the price one would have to pay to lease the car, multiplied by the proportion of mileage driven for personal purposes. For instance, if the car's annual least cost was $5,000 and 80 percent of its mileage was for your own personal use, the income value of the benefit would be $4,000 (5,000 x .80 = 4,000).
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