Calculating the value of company cars employees drive for their personal use just got a little easier now that IRS has released final regs. And they took effect Feb. 5, 2020.
The final regs provide the details you and your payroll department need to tax this fringe benefit correctly in accordance with the Tax Cuts and Jobs Act.
You have options with company cars
To determine the fair market value (FMV) of the fringe benefit, you can use special valuation rules. The new regs note two such rules:
- The fleet-average valuation rule. If your company has a fleet of at least 20 vehicles, you can use this valuation rule as an option. You’d calculate the average FMV of all the vehicles in the fleet. From there, you’d use the IRS Annual Lease Value Table.
- The vehicle cents-per-mile valuation rule. With this method, you’d multiply the IRS’ standard mileage rate — which sits at 57.5 cents for this year — by the number of miles the worker’s driven in the company vehicle for personal reasons.
But of course, there’s a catch. To use either of these methods, the vehicle FMV can’t exceed a certain amount. The good news? That maximum amount is higher than it was in the past: $50,400 for 2020.
What’s more, transition relief is available for certain employers who didn’t qualify to use either of the special valuation methods in tax years 2018 or 2019.
The maximum FMV of company vehicles was adjusted retroactively for each year in the IRS’ final regs.
And if your company couldn’t use the fleet-average valuation rule because the value of a vehicle exceeded the existing maximum prior to Jan. 1, 2018, you’re allowed to use new values updated for inflation as relief. Note: The value of any vehicles in the fleet can’t exceed $50,000 on Jan. 1, 2018 or $50,400 on Jan. 1, 2019.
