Tax Law (Questions About Taxes)/Car Mileage

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QUESTION: When using the annual lease value rule for employer-provided vehicle, I understand it does not include the value of fuel that we provide to the employee for personal use.  The company have determined that the employee will pay for the fuel out of his own pocket for personal use. The company will not reimburse or have it charge it to us.  Do we still have to include the fuel separately using the 5.5 cents per mile rate and report it on the employees W2's???

Also, based on the rules this employee qualifies for using the Annual Lease Value Rule.  The other commuter rules does not apply and therefore, we can't use them.

I am not sure if I word this right, nevertheless, any information regarding the value of fuel is greatly appreciated.

Thank you,
Lee

ANSWER: Lee:

If the employee pays for the gas he uses while using the vehicle personally and he keeps up with the mileage both for personal use and company use then the 5.5 cents per mile use would not apply.  However, if the company pays all fuel cost and/or he/she does not keep up with the mileage then the 5.5 cent per mile rule would apply.  The IRS does not bend on the keeping up with miles for both personal and business use it must all be accounted for.

Hope this will assist you,

John

---------- FOLLOW-UP ----------

QUESTION: Hi John,
Thank you for the follow up answer, I have a question in regards to your answer.  What if the company pays for all fuel cost and the employee keeps and maintains records of both personal and business use of his miles, then would the 5.5 cent per mile rule still applies and if so, do we "Deduct" the cost of fuel from employees wages as a deduction?

However, according to Publication 15-B, Fringe Benefit Valuation Rules, it states that the cost of fuel needs to be reported on employees wages.  does this means it is taxable?  Can you please clarify if this cost of fuel is to be deducted from employees wages as a deduction or reported on employees W2 as a taxable item.

thank you and appreciate your help

Lee

Answer
Lee:

If your company leases the vehicle in the company name the company must maintain the vehicle mileage log recording both the business miles an the personal use miles.  The personal use miles have a value excluding gasoline put into the vehicle.  That value is 5.5 cents per mile that must be added to the employees total wages for the year and the employee must pay taxes on the additional added wages.  

The vehicle when purchased has a dollar value.  Since the employee is depleting this value as he personally uses the vehicle this depletion value is wages.  The theory of the IRS is the vehicle is not the employee's that the employee uses it for work and the personal use is wages not related to his work since it is personal it has to be wages.

Hopefully this explains it better.

John

Tax Law (Questions About Taxes)

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John L. Tidwell

Expertise

Unemployment tax law both state and federal; determination of employer employee relationship; the usual 20 commonlaw factors for making that determination; and what makes me a liable employer.

Experience

Over 20 years of field audit experience with a state agency

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none

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Education/Credentials
Degree in Accounting from Falls Business College

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