Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
What is it?
Company cars or plans that reimburse expenses for use
of personal cars are not employee benefits as such
since purpose is not to compensate employee
Employer’s policy regarding business use of cars is
often regarded as part of the employer’s fringe benefit
package
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Possible Arrangements Business Use of Cars
– Company car
– Reimbursement plan
– No plan
Note, for self-employed, all business related car expenses are
tax deductible
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Company Car - When is it Indicated?
• When employees use a car substantially for business
or commuting
• Fringe benefit for selected executives
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Company Car Advantages
1. A company car can maximize tax benefits for an
employee
2. Company retains maximum control over cars used
by employees
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Company Car Disadvantages
1. Company bears capital investment costs of car
ownership
2. Substantial administrative costs
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Company Car - Tax Treatment of Employer
As car owner, employer entitled to deductions for
depreciation and expenses
Under employer reporting, employer can either:
- report entire value of car availability on employee W-2;
- determine and report only personal/commuting use
- report only commuting use not reimbursed by employee
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Company Car - Tax Treatment of Employer
Valuation of car availability
Taxable value of car to employee is amount an
unrelated 3rd party would charge for use in arms-length
transaction or employer can elect one of three special
valuation rules:
1. lease value from IRS tables
2. mileage rate of $0.51 / mile (2011) if certain requirements met
3. commuting valuation rule of $3 per round trip ($1.50 per oneway)
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Company Car - Tax Treatment of Employee
• Providing employee a car for business purposes is a
“working condition fringe”; value is excluded from
income
• If car used for commuting or personal purposes,
prorated amount is included in employee income
• If employee pays for business use of car, can deduct
as miscellaneous itemized deduction
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Company Car - Tax Treatment of Employee
Employee recordkeeping
If car used for business and personal needs, employee must
substantiate business use unless
• Company has written policy of no personal use (except
commuting)
• Employee is not a control employee
• Employer reports commuting value to extent no reimbrsed by
employer
• Employee requires for business reasons to travel to or from work
in vehicle
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Reimbursement Plans and “No Plans”
1. Accountable plan - employee must account for
expenses to employer return excess reimbursement
2. Nonaccountable plan employee doesn’t account for expenses
or
employee keeps excess reimbursements
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Reimbursement Plans and “No Plans”
3. No plan
–
employer does not directly reimburse
–
employee responsible for paying expenses
–
employee entitled to any deduction for expenses
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Reporting
• W-2 reporting by employer in certain situations
• Employee determines deductible amount (Form
2106 or Form 2106- EZ) and claims as miscellaneous
itemized deduction to extent exceed 2% employee
adjusted gross income
• Self-employed compute and enter car expense on
Schedule C, no 2% of adjusted gross income
limitations
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Company Car or
Reimbursement Plan
Chapter 53
Employee Benefit & Retirement Planning
Discussion Questions
1. What types of “getting to work” trips are business
expenses rather than commuting expenses?
2. Why is it advantageous for a car to be used more
than 50% of the time for business rather than 50%
or less?
3. When is it advantageous to use the standard
mileage rate rather than exact expenses?
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