Reporting the Taxable Value of Personal Use of Employer- Provided Vehicles and Chauffeur Services for 2008
To provide instructions for reporting the taxable value of employer-provided vehicles and chauffeur services for 2008.
Employees with employer-provided vehicles and chauffeurs.
According to Internal Revenue Service Publication 525 (Taxable and Nontaxable Income), page 8:
“Employer-provided vehicles - If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit.”
Employers (agencies) providing a vehicle to an employee and/or services of a chauffeur, which the employee may use for personal use, must include in the employee’s wages an amount that represents the value the employee received for personal use of the vehicle and the value of the chauffeur’s services associated with the personal use. The employee must be able to substantiate all business use of the vehicle. If an employee is unable to substantiate business use, all miles driven are deemed to be for personal use by the employee and the value is included in the employee’s income.
Personal use of a State vehicle generally includes use of the vehicle for purposes of commuting to and from an employee’s home and his or her official work station.
OSC will report the value of personal use of an employer-provided vehicle and personal use of employer-provided chauffeur services for the period November 1, 2007 through October 31, 2008 as income on the employee’s 2008 W-2 Statement. The taxable amounts for 2008 should be reported as soon as possible, but no later than Pay Periods 18 Lag and 19 Current for both Institution and Administration agencies.
|Determining the Value of Employer-Provider Vehicles
General Valuation Rule
The general valuation rule must be used to determine the value of most fringe benefits. Under this rule, the value of a fringe benefit is its Fair Market Value (FMV). However, to determine the value of personal use of an employer-provided vehicle for a November 1-October 31 reporting period, the employee may elect to use any one of the three special valuation methods described below to the extent it applies.
Two of the special rules depend, in part, on the value of the employer-provided vehicle. For purposes of this bulletin, the value of an employer-provided vehicle is the amount a person would pay to buy it from a third party in an arm’s-length transaction in the area in which the automobile is bought or leased. That amount includes all purchase expenses, such as sales tax and title fees. The Internal Revenue Service accepts valuations in nationally recognized pricing guides published by the Kelley Blue Book or any similar organization providing this type of service.
The following rules are in effect for the reporting period:
A. Cents-Per-Mile Rule
Employees may use the cents-per-mile rule if either of the following requirements is met:
- Vehicle is expected to be regularly used for State business throughout the calendar year (or for a shorter period during which the vehicle is owned or leased by the State). A vehicle is considered to be regularly used for business purposes when at least 50% of the vehicle’s total mileage is for State business or the vehicle is generally used each workday to drive at least three (3) employees to and from work in an employer-sponsored commuting vehicle pool.
- Vehicle meets the mileage test that the vehicle is actually driven at least 10,000 miles (business or personal, including commuting) during the year. If the vehicle is owned or leased by the State for only part of the year, reduce the 10,000 mile requirement proportionately.
For the 2008 reporting period, the standard mileage rate is 50.5 cents a mile for November 1, 2007 - June 30, 2008 and 58.5 cents per mile for July 1, 2008 - October 31, 2008. If gasoline is not supplied or reimbursed to the employee, the rate per mile is 45.0 cents for November 1, 2007 - June 30, 2008 and 53.0 cents for July 1, 2008 - October 31, 2008.
The cents-per-mile rule cannot be used for vehicles that were first made available to employees in the 2008 reporting period if the fair market value exceeds $15,000 for a passenger automobile and $16,000 for a truck or van. The term “trucks and vans” refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis.
Consistency requirements. If the cents-per-mile rule is used, the following requirements apply:
- Begin using the cents-per-mile rule on the first day the vehicle is made available to any employee for personal use. However, if the commuting rule is first used when the vehicle is made available to employees for personal use, the employee can change to the cents-per-mile rule on the first day for which the commuting rule is not used.
- Use the cents-per-mile rule for all later years in which the vehicle is made available to any employee and the vehicle qualifies, except the commuting rule can be used if the vehicle qualifies under the commuting rule.
B. Commuting Rule
Commuting is valued at $1.50 each way ($3.00 per round trip) for each day the vehicle is used for commuting. If more than one employee commutes in the vehicle, this value applies to each employee. This amount must be included in the employee’s wages or reimbursed by the employee.
The commuting rule can be used if all of the following requirements are met:
- The vehicle is provided to an employee for State business use and is not chauffeured (unless the employee is the chauffeur) and, for bona fide non-compensatory business reasons, the employee is required to commute in the vehicle. This requirement is met if the vehicle is generally used each workday to carry at least three (3) employees to and from work in an employer-sponsored commuting pool.
- A written policy is established under which the employee is not allowed to use the vehicle for personal purposes other than for commuting or de minimis personal use (such as a stop for a personal errand on the way between a business delivery and the employee’s home).
- The employee does not use the vehicle for personal purposes other than commuting and de minimis personal use.
- The employee who uses the vehicle is not receiving compensation for 2008 equal to or exceeding $139,600 the pay of a federal government employee holding a position at Executive Level V.
- The employee is not an elected official.
C. Annual Lease Value (ALV) Method
Under this method, the value of an automobile provided to an employee is determined by using its Annual Lease Value (ALV). For an automobile provided only part of the year, use either its prorated annual lease value or its daily lease value.
The ALV of a vehicle is determined as follows:
- Determine the fair market value of the vehicle as of the first day on which it was made available to an employee for personal use.
- Find the ALV in the table for the appropriate fair market value of the vehicle as determined in step 1 above.
Employees who use the lease value rule should be reminded of the consistency requirements of the rule:
- Employees must begin using this rule on the first day the vehicle is made available for personal use. The Fair Market Value (FMV) of the vehicle must be determined on the first date it is made available to any employee for commuting or other personal use. The FMV of an employee’s assigned vehicle may only be re-evaluated after four (4) full years of use, or when the vehicle is transferred to another employee.
As explained in the first part of this section, the initial valuation and the re-evaluation can be performed using nationally recognized vehicle pricing guides such as the Kelley Blue Book value or any other accepted pricing authority or service. However, the following exceptions apply:
- If the commuting rule was used when the vehicle was first made available for personal use, this method may be changed to the lease value rule on the first day for which the commuting rule is not used.
- If the cents-per-mile rule was used when the vehicle was first made available for personal use, this method may be changed to the lease value rule on the first day on which the vehicle no longer qualifies for the cents-per-mile rule.
- Employees must use this rule for all later years in which the vehicle is made available, except that the commuting rule may be used for any year during which use of the vehicle qualifies.
- The Annual Lease Value (ALV) does not include the value of employer-provided fuel. An alternative method in the valuation of fuel provided by the employer is 5.5 cents per mile for all personal/commuting miles driven by the employee. The fair market value of fuel, the cost of which is reimbursed by or charged to an employer, is generally the amount of the actual reimbursement or the amount charged, provided the purchase of the fuel is at arm’s-length. The personal use value of employer-provided fuel is to be added to the Employee Worksheet or a similar form adapted by agencies.
State-Provided Chauffeur Services
- In general, the fair market value of chauffeur services provided to the employee by the State is the amount that an individual would have to pay in an arm’s-length transaction to obtain the same or comparable chauffeur services in the geographic area for the period in which the services are provided. In determining the applicable fair market value, the amount of time, if any, the chauffeur remains on-call to perform chauffeur services must be included.
For example, assume that A, a Commissioner for a State Agency, needs a chauffeur to be on-call to provide services to A during a twenty-four hour period. If during that twenty-four hour period, the chauffeur actually drives A for only six hours, the fair market value of the chauffeur services would be the value of having a chauffeur on-call for a twenty-four hour period. The cost of taxi fare or limousine service for the six hours the chauffeur actually drove A would not be an accurate measure of the fair market value of chauffeur services provided to A. Moreover, all other aspects of the chauffeur’s services (including special qualifications, i.e. training in evasive driving skills) must be taken into consideration.
- Alternative valuation with reference to compensation paid: the fair market value of the chauffeur services may be determined by reference to the compensation as defined in IRS section 415(c)(3) (roughly, taxable compensation plus elective deferrals) and the fair market value of nontaxable lodging (if any) provided by the State to the chauffeur in the current year.
- Separate valuation for chauffeur services: the value of chauffeur services is determined separately from the value of the availability of an employer-provided vehicle.
- As with the use of the vehicle itself, only the portion of the value of chauffeur services that is provided in connection with personal use of the vehicle are taxable and required to be included in the employee’s income. This portion is the fraction, the numerator of which is the total number of hours spent by the chauffeur actually providing personal driving services to the particular employee plus the hours spent by the chauffeur in “personal on-call time,” and the denominator of which is the total number of hours the chauffeur spent in driving services of any kind paid for by the employer, including all hours that are “on-call time.”
- For this purpose, on-call time during regular business hours is presumed to be business-related, while on-call time outside regular business hours is presumed to be “personal on-call time.”
- However, if some driving is done outside regular business hours, a portion (equal to the fraction of the actual driving that is business-related) of the on-call time outside regular business hours will be considered business-related, as well. Thus, if 100% of the actual driving outside regular business hours is business-related, 100% of the on-call time outside regular business hours also will be.
- With respect to a round-trip, time spent waiting for an employee to make a return trip is generally not treated as on-call time. Rather, it is treated as part of the round trip.
This information is taken from IRS Regs. Section 1.61-21(b)(5).
- If a vehicle is chauffeur-driven, the commuting valuation rule cannot be used to value the commuting use of any person (other than the chauffeur) who rides in the vehicle. An individual will not be considered a chauffeur if he or she performs non-driving services for the employer, is not available to perform driving services while performing such other services and whose only driving services consist of driving a vehicle used for commuting by other employees of the employer. This simply means that the other methods of calculating the personal value of employer-provided vehicles should be used by the chauffeur.
Special IRS rules may apply if bona fide security concerns are presented. See IRS Regs. Section 1.132-5(m).
Employees must be able to substantiate their business use of State-provided vehicles and chauffeur services, and are responsible for maintaining documentation to support the business use of a State-provided vehicle or chauffeur.
The standard for record keeping is “adequate records or sufficient evidence” to support any business use of the vehicle.
Examples of acceptable substantiation are: account books, diaries, logs, receipts, bills, trip sheets or statement of expense forms. Written records made at or near the time the expense was incurred should be maintained to document the time, date, place and purpose of business travel.
A form similar to the Employee Worksheet should be completed and signed by each employee covered by the regulations. The form should be retained by the agency.
An employee’s use of a qualified nonpersonal-use vehicle is a working condition fringe benefit. A qualified nonpersonal-use vehicle is any vehicle the employee is not likely to use more than minimally for personal purposes because of its design.
Qualified nonpersonal-use vehicles, including trucks and vans, are exempt from business use substantiation. They generally include all of the following vehicles:
- Clearly marked police and fire vehicles (if the employee is always on call, is required to use the vehicle for commuting, and is prohibited from using the vehicle for personal purposes (other than commuting) outside the employee’s jurisdiction).
- Unmarked vehicles used by law enforcement officers (if the personal use is officially authorized and incident to law enforcement functions, i.e., no vacation use). See additional information below.
- An ambulance or hearse used for its specific purpose.
- Any vehicle designed to carry cargo with a loaded gross vehicle weight over 14,000 pounds.
- Delivery trucks with seating for the driver only, or the driver plus a folding jump seat.
- A passenger bus with a capacity of at least 20 passengers used for its specific purpose.
- School buses.
- Tractors and other special-purpose farm vehicles.
Unmarked Law Enforcement Vehicles
To qualify for the exception to the substantiation requirements of IRC section 274(d) for an unmarked vehicle used by a “law enforcement officer,” any personal use must be authorized by the Federal, State, county, or local governmental agency or department that owns or leases the vehicle and employs the officer, and must be incident to law-enforcement functions, such as:
- Being able to report directly from home to a stakeout or surveillance site, or to an emergency situation. Use of an unmarked vehicle for vacation or recreation trips cannot qualify as an authorized use.
Who is a Law Enforcement Officer
A law enforcement officer is an individual who:
- is employed on a full-time basis by a governmental unit that is responsible for the prevention or investigation of crime involving injury to persons or property (including apprehension or detention of persons of such crimes); and
- is authorized by law to carry firearms, execute search warrants, and to make arrests (other than merely a citizen’s arrest); and
- regularly carries firearms (except when it not possible to do so because of the requirements of undercover work).
The term “law enforcement officer” may include an arson investigator if the investigator otherwise meets the requirements mentioned above, but does not include Internal Revenue Service special agents.
IRS has provided additional guidelines for determining when certain specifically modified pickup trucks or vans will be recognized as qualified nonpersonal-use vehicles.
Pickup trucks with a loaded gross vehicle weight of 14,000 pounds or less if either of the following requirements is met:
- Vehicle is clearly marked with permanently affixed decals or with special painting or other advertising associated with the employer’s trade, business, or function and is equipped with at least one of the following:
- Hydraulic lift gate
- Permanently installed tanks or drums
- Permanently installed side boards or panels materially raising the level of the sides of the bed of the pickup truck
- Other heavy equipment such as an electric generator, welder, boom or crane used to tow an automobile and other vehicles
- The vehicle is clearly marked with permanently affixed decals or with special painting or other advertising associated with the employer’s trade, business, or function, is actually used primarily for transporting a particular type of load other than over the public highway in connection with construction, manufacturing, processing, farming, mining, drilling, timbering, or other similar operation, and has been designed or modified to a significant degree for such use.
Vans with a loaded gross vehicle weight not over 14,000 pounds, if it has been specially modified with the result that it is not likely to be used more than minimally for personal purposes.
- Vehicle is clearly marked with permanently affixed decals or with special painting or other advertising associated with the employer’s trade, business, or function, and has a seat only for the driver or the driver and one (1) other person, and has either:
- Permanent shelving installed that fills most of the cargo area, or
- An open cargo area and the van always carries merchandise, material, or equipment used in the employer’s trade, business or function.
This information is taken from IRS Regs. sections 1.132-5(h) and 1.274-5T(k); Rev. Rul. 86-97; 1986-2 C.B. 42; IRS Taxable Fringe Benefit Guide (rev. January 2007); and IRS Publication 15-B (section on “Working Condition Benefits”).
Agencies may enter the taxable value using the earn code FRB on the Time Entry pages or through the agency Miscellaneous File.
TERMINATION OR RESIGNATION OF EMPLOYEES WITH EMPLOYER-PROVIDED VEHICLES:
Agencies must ensure that employees with employer-provided vehicles submit a completed Employee Worksheet when the vehicle is returned to the agency to report the value of personal use from November 1, 2007 up to the day the vehicle is returned. Agencies must enter the taxable value using the earn code FRB on the Time Entry pages or through the agency Miscellaneous File to ensure the appropriate taxes on the taxable value are deducted from the final check due the employee.
Agency staff are responsible for calculating the value of State-provided chauffeur services.
The taxable value of personal use of an employer-provided vehicle is subject to income and Social Security/Medicare taxes and must be reported as income on the W-2 Statement. New York State will not withhold Federal income taxes. However, State, local and Social Security/Medicare taxes will be withheld.
While OSC cannot withhold taxes for Inactive employees, OSC will include the taxable value on the employee’s W-2 Statement.
|Employee's Paycheck/Direct Deposit Advice
The Fringe benefit and the amount of the taxable value will appear on the paycheck stub or direct deposit advice and will be included in the YTD Gross.amount is not considered salary for the purpose of computing retirement benefits.
Questions regarding Time Entry transactions should be directed to your agency’s Payroll Auditor.
Questions regarding the taxable value calculation should be directed to the Payroll Deductions mailbox.