You can also use the standard mileage rate to value employees’ personal use of moderately priced company cars. What’s moderately priced: The IRS has yet to release the 2013 amounts, but for 2012, the amounts were $15,900 for cars and $16,700 for SUVs. (Notice 2012-72, IRB 2012-50)
Get your motor running
For employees who drive their own cars on business, the 56.5-cent-a-mile rate is a ceiling. If you choose, you can use a lower per-mile reimbursement rate. Snag: Employees can deduct the difference between the IRS’ rate and your lower rate, but they’ll have to attach Form 2106 to their 1040s next year to do so.
Reimbursements up to 56.5 cents a mile are tax-free, provided employees keep track of their business miles, where they drove, whom they saw and the business they conducted. (For tracking mileage, GPS devices or smartphones equipped with a mileage tracking app that are backed up to a server make this easier, but don’t ditch the paper-and-pen method, just in case.)
What’s taxable: reimbursements exceeding 56.5 cents a mile, amounts employees don’t return and amounts paid for miles for which employees don’t keep adequate records.
Example: Emily’s mileage allowance is 65 cents a mile. In May, she receives $325 for 500 business miles to be traveled that month. In June, she proves that 400 miles were traveled. She returns $65 for the 100 miles not traveled. The amount deemed accounted for—400 miles—is $226 (400 × 0.565 = $226), and she doesn’t return the remaining $34. By the first pay period after the pay period in which the 400 miles are accounted for, her employer pays taxes on the $34 as wages.
For income tax withholding purposes, the standard mileage rate may be used to value employees’ personal use of company vehicles. But if a vehicle isn’t moderately priced, you must use the general valuation method or lease valuation method to value personal miles.
Example: Ben drives a $31,000 company car. Using the annual lease value table for a $31,000 car, the taxable value is $8,250. If he accounts for 25,000 business miles and 15,000 personal miles, the math works like this:
15,000 ÷ 40,000 = 0.375
0.375 × $8,250 = $3,093.75
The taxable amount of his personal use is $3,093.75.