Your company has provided you with a leased vehicle to be used for business purposes. The Internal Revenue Service views the business use of a vehicle as a business expense of your employer. They also view the personal use of the vehicle as a taxable fringe benefit to you. Each year your company must determine the taxable personal use value of the leased vehicle provided to you. Your company has elected to use the Wheels Driver Tax Compliance Program as the means for collecting your information and calculating your fringe benefit amount. The following questions and answers address common concerns drivers have regarding personal use, the Driver Tax Compliance Program and their responsibility in this area. The questions are divided into the following categories:
Calculation of personal use benefit
CALCULATION OF PERSONAL USE BENEFIT
Q: What is personal use?
A: Personal use is the use of a company-provided vehicle for non-business purposes. The following are examples of personal use: · Weekend driving unrelated to business · Vacation driving · Commute mileage · Midday drive away from office: solely or primarily for personal reasons (e.g., for personal banking, personal mail, medical appointments, lunch, etc.) · Loan of a car to authorized family member(s) for use unrelated to company business. The IRS considers this use as a taxable fringe benefit from your employer to you.
Q: What are commuting miles?
A: The IRS considers the miles you drive from home to the office as commuting miles. This mileage is viewed as personal mileage. Special rules apply if you have a home office; other rules apply if you have neither a home office nor an office in your geographic area.
Q: How is personal use of leased vehicles determined?
A: The IRS allows companies several methods to determine the value of personal use. Most companies use an accounting tax method called "Annual Lease Value."
Q: What is Annual Lease Value?
A: The IRS has determined an average cost to lease a vehicle for a one-year period. This cost is based on the price of the vehicle related to an IRS table. For example, a vehicle with a cost of $18,000 will have an Annual Lease Value of $5,100 for the year.
Q: How is this personal use percentage obtained?
A: Each year your company will ask you to report the amount of personal and business miles you have driven in the company vehicle. Personal usage percents are determined by dividing personal miles into total miles. For example, a driver may have driven 20,000 miles during the year, 5,000 of which were personal miles. A 25% personal use factor results – 5,000/20,000 equaling 25%.
Q: What about gasoline purchases?
A: If your company reimburses you for gasoline you purchase, the IRS requires your company to charge you 5.5¢ per mile for personal miles driven. This amount is added to the calculated Annual Lease Value.
Q: What if I don’t have the vehicle for the full year?
A: Your company is required to prorate the value for the amount of time the vehicle was assigned to you. Once the prorated Annual Lease Value is determined, your company is required to determine the personal use percentage and multiply this percentage by the prorated Annual Lease Value.
Q: What is my role in the process?
A: As a driver of a company vehicle you are required to keep track of your business expenses and personal use of your leased vehicle. It is recommended that you use mileage logs to record business/personal mileage. Each year you will be asked to certify your business and personal mileage.
Q: What information should expense logs contain?
A: The level of detail required to establish the level of business use may vary depending on the circumstances. Your company may have specific requirements in this area. An example of a mileage log is given below: Destination Purpose of Trip Odometer Mileage Breakdown Date Contact Beg End Business Personal Commuting
Q: What happens if I do not keep records?
A: If you do not have records to support the amount of business/personal miles driven, your company is required to consider that you have used the vehicle 100% for personal purposes.
Q: How will this affect my wages?
A: Your company will add to your year-end wages the personal use portion of the Annual Lease Value for the vehicle assigned to you.
Q: How will this affect my taxes?
A: Your company will withhold FICA taxes on the taxable value determined. Federal income taxes may be withheld depending on the policy of your company. Note: the amount of taxable use is added to your wages, which will increase your final taxes due.
Q: For what period do I need to maintain records?
A: Your company requires that you report personal and business miles for a twelve-month period. The twelve-month period chosen by your company is indicated on the Driver Tax Compliance notification you recently received. It is necessary that you maintain records to support reporting data for the period chosen.
Q: Wheels has my mileage records. Why do I need to report them again?
A: While Wheels may have some mileage records, it is important for you to report the collective personal and business miles total in order to comply with IRS regulations. By reporting your yearly total, you are certifying the numbers are accurate and that documentation has been maintained.
Q: My company already charges me for personal use, why again?
A: Some companies charge employees a set amount each pay period for the personal use of a company vehicle. If your company does this, it still must determine the actual value of the personal use of the vehicle. This reconciliation process occurs at year-end. Employees are normally charged for the difference between actual personal use less monthly estimated charges.
Q: The other company I worked for did not require all this data.
A: Over the years the IRS has intensified its effort to tax employer-provided fringe benefits. Personal use of company cars is a fringe benefit that must be handled correctly. Your company is protecting your interests as well as theirs.
Q: Why do I report this information to Wheels?
A: Wheels provides your company a valuable service known as Driver Tax Compliance. This service obtains personal use data, answers your questions, and provides your company with the necessary reports to handle the payroll reporting process.
Q: The Driver Tax Compliance notification I received has a response date on it. What happens if I do not respond?
A: Your company requires time to adequately process your personal use data into your final year-end payroll check/W-2 wages. It is very important to meet reporting dates. Reporting dates were set by your company to meet timing requirements for processing year-end payroll data. Failure to report by the cut-off date may result in the full annual lease value of the vehicle being used to calculate your taxable benefit.
Q: How do I know if the information I report has been received by Wheels?
A: Wheels provides you with two methods for reporting your information; DriverView™ Internet tool and a toll-free automated telephone number. Both methods will provide you with a confirmation number which you should retain as your acknowledgment that Wheels has received the information you reported.
Q: What if I mistakenly report the wrong information?
A: After initially reporting your required information, you will have the ability to change it two times in the event that a mistake in your reporting occurred.