Despite the steep drop in gas prices at the pump, the IRS’ standard mileage rate, which you may use to reimburse employees who drive their own cars on business, increases to 57.5¢ a mile for 2015, from 56¢ a mile.
You can also use the standard mileage rate to value employees’ personal use of company vehicles that are first made available to employees this year, but only if those vehicles are moderately priced. Warning: The IRS has yet to release the 2015 amounts, but for 2014, the amounts were $16,000 for cars and $17,300 for SUVs. (Notice 2014-79, IRB 2014-53)
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Driving for dollars. For employees who drive their own cars on business, the 57.5¢ per-mile rate is a ceiling; you may use a lower per-mile reimbursement rate. Reimbursements up to 57.5¢ a mile are tax-free, provided employees keep track of their business miles, where they drove, whom they saw and the business they conducted. Electronic expense reports and GPS devices or smartphones equipped with a mileage tracking app that are backed up to a server make this easier.
What’s taxable: reimbursements exceeding 57.5¢ a mile, amounts employees don’t return and amounts paid for miles for which employees don’t keep adequate records.
Example. Wendy’s mileage allowance is 65¢ a mile. In September, she receives $325 for 500 business miles to be traveled that month. In October, she proves that she drove 400 business miles.
Wendy returns $65 for the 100 miles not traveled. The amount deemed accounted for, for the 400 miles, is $230 (400 × 57.5¢), and she doesn’t return the remaining $30. By the first pay period after the pay period in which the 400 miles are accounted for, her employer pays taxes on the $30 as wages.
Perk me up. Employees’ personal use of company vehicles is taxable. The standard mileage rate may be used to value personal use, but if a vehicle’s value exceeds the IRS’ limits, you must use either the general valuation method or lease valuation method to value personal use. First, subtract employees’ substantiated business miles from the total miles driven. The next step depends on your valuation method.
Example. Ben drives a $31,000 company car. Using the annual lease value table for a $31,000 car, $8,250 is the lease value. If he accounts for 25,000 business miles and 15,000 personal miles: 15,000 ÷ 40,000 = 0.375 × $8,250 = $3,093.75 is the taxable amount of his personal use.