A company’s cost for personal use depends on the method used for charging the employee. If the value of personal use is imputed as income, the employer does not recover any of the cost for personal use. However, if the employer and employee share the cost of personal use under a payment program, a fleet can significantly reduce its vehicle depreciation expense and incremental operating cost. Most fleets (83 percent) charge employees for personal use to help recoup the increased fleet cost. The most common personal-use chargeback method is a single flat monthly fee, followed by a per-mile charge at an average of 32 cents, most often deducted from an employee’s salary. End-of-the-Year Headache
Personal use occurs when an employee uses a company vehicle for private transportation not associated with authorized company business. The IRS requires every business to measure and report as income the extent of an employee’s compensation associated with the personal use of a company-provided vehicle, including the value of company-paid fuel. The process of calculating personal use taxable benefits is an end-of-the-year headache for most fleet managers. It is also costly for the company’s bottom line by requiring significant program administration. Currently, internal costs for a personal use taxable benefit program ranged from $32 to $70 per year per vehicle. Your company’s policy should comply with all federal tax requirements. This requires that employees report vehicle usage to their employers, properly compute personal use of the company-provided vehicle, and comply with the associated payroll tax requirements. Your fleet manager’s responsibility is to protect your company from tax problems associated with unreported personal use. What should be done with drivers who don’t report mileage? The most common remedy is to assess a default amount. Some companies use 100 percent of the Annual Lease Value and leave it to the driver to claim a business use deduction on his or her personal income tax return. Should you refund the driver if personal use is underutilized? Likewise, should you charge the driver more if personal use is overutilized? To deal with these issues, some companies use a tiered chargeback system consistent with the value of the vehicle and the typical amount of personal-use mileage. It is important to periodically audit driver statements of personal-use mileage to ensure compliance and that drivers are keeping accurate business records of miles driven. If you haven’t done so recently, now may be the right time to re-examine your chargeback system to determine whether it is adequately recouping your company’s expense for personal use of employer-provided vehicles. You may be in for a surprise.
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Originally posted on Automotive Fleet