Strange Tax Question???

[Irishgrrrl]

OK, I''m going to try to explain this as well as I possibly can, but I''m no tax pro, so please bear with me!

DH''s employer provided him with a company vehicle around the middle of this year. He drives it to and from work, drives it around to various job sites all day long for work purposes, and is also permitted to drive it for personal use as much as he wants. (The VAST majority of the miles put on this vehicle are work-related miles, not commuting or personal miles.) However, DH just found out that he has to pay some sort of tax on the mileage that he drives it for personal use (including commuting to and from work). That makes sense, and we aren''t arguing with the fact that he should pay some sort of tax on the personal mileage, since that is essentially a form of compensation that he receives. HOWEVER, his employer is collecting this tax in one big lump sum from his paycheck this week. We have two issues with this:

1. Shouldn''t the employer simply list the personal mileage as compensation on DH''s W-2 for this year and allow DH to pay the tax directly to the IRS, rather than the employer collecting the tax themselves?

2. The employer explained to DH that the IRS actually taxes the employer based on the number of miles the company vehicle is driven, and the employee must then reimburse the employer for the portion of those miles that were personal. In other words, this tax should not appear on our tax return at all, but only on the employer''s (according to the employer). This does not make any sense to me whatsoever. I don''t see how the IRS can tax the employer for the use of its own vehicle??? In fact, can''t a business actually claim DEDUCTIONS for the costs related to a business-owned vehicle (purchase price, depreciation, gas, maintenance, etc.)?

I''m just concerned that we''re going to somehow wind up paying this tax twice . . . once to the employer when it''s deducted from DH''s check this week, and again to the IRS when we file our taxes for 2009. I''d greatly appreciate any light anyone can shed on this!

 

[meresal]

ETA: Wrong one...

From what I have read so far, and I'm not an expert, it looks like campny use of the car should be considered personal income and this is stipulated by the monthly lease amount being classified as "income" to the employee, and the person using the car should pay the taxes to the IRS. I haven't seen an article yet, that uses the scenario that the company witholding the taxes and then paying them to the IRS themselves.

Still searching though...

 

[crown1]

my husband had a situation where he had a company vehicle and he paid the tax each pay period. he often let other employees use his car (for company business) to rack up company miles since he paid less tax if more company miles were used. i do not understand all about the details, just that he did pay to the employer regularly, and it was advantageous to have more company miles each period. as, i believe you stated, it is considered compensation and is taxable.


eta: i believe the fleet of vehicles his company used were leased. this probably has something to do with the taxation? i have no tax expertise at all, this is just our experience.

 

[Irishgrrrl]

Thanks, Meresal and Crown!

I''m going to wait until we get DH''s check stub for this week and see exactly what the deduction says. I guess we''ll just have to be extra careful when we do our taxes, to make sure we don''t wind up paying for this twice. It just seems a little fishy to me!

 

[exoticisabella]

Spoke to my tax accountant husband. He said that personal miles on a company car ARE considered a benefit or form of income. He also said that another possible option is for the company to issue your DH a 1099 (I think that''s the form he said

) and the miles would then be considered taxable income. And yes, the company can also write off the miles and the depreciation on the car. Doesn''t seem fair does it?

 

[Irishgrrrl]

Isabella ~ Thanks!

And no, it definitely does not seem fair . . . I don't think they should be able to have it both ways.

ETA: In light of what your husband said, what DH's employer is doing sounds even more fishy to me! I'll let you guys know what the pay stub looks like when we get it.

 

[soocool]

In a previous job one of my responsibilities included calculations for personal usage of a company's leased vehicles for the sales force (approx 250 salespeople).

There were 2 kinds of programs, Runzheimer and leased vehicles. In the Runzheimer program, the salesperson actually owned the vehicle and was given a monthly stipend or reimbursement for the cost of the vehicle which included cost of maintaining such a vehicle ( including insurance). These calculations for monthly reimbursement were compiled by Runzheimer and the sales person would claim reimbursement on his/her monthly expense report.

For leased vehicles, the salesperson had to record beginning and ending miles each month and had to claim personal mileage as well. Based on this he/she would be reimbursed the cost of gas based on business usage and he/she would be responsible for cost of gas for personal use. At the end of the year, personal mileage would be calculated as a percentage of total miles placed on the car by that salesperson. This percentage of personal usage would then be used to determine actual benefited cost to the sales person and be put on their final paycheck as taxable income. In a nutshell, if the personal mileage on the leased vehicle was 10% of total miles for that fiscal year, 10% of total cost of that leased vehicle for the fiscal year would be placed on the salesperson final paycheck. (costs include, monthly lease cost, insurance, maintenance such as oil changes, new tires, car washes, etc, but not gas because that was expensed by the sales person). The amount would be added to the final paycheck as taxable compensation. (This will also appear on the W2 form).

Regarding travel to and from office. If your husband has a regular office he travels to each day, then these are normal commuting miles (personal use) and not business miles. If your husband traveled to the airport from home, the regular miles he would travel to work should be deducted from the miles he would travel to the airport to be considered business mileage)

I would check the IRS tax codes for leased vehicles though to make sure that nothing has changed. My DH has a company car and he only uses it for business and claims no personal mileage.

 

[soocool]

SECTION 2. BACKGROUND
.01 If an employer provides an employee with a vehicle that is available to the employee for personal use, the value of the personal use must generally be included in the employee’s income and wages. Internal Revenue Code § 61; Treas. Reg. § 1.61-21.
http://www.irs.gov/irb/2009-03_IRB/ar12.html


This may be a starting point for you. Also, have your husband ask to see the company''s handbook regarding leased vehicles. It should spell everything out very precisely and should be in compliance with the tax codes. If still unsure, have him contact the IRS directly. They will tell him what he needs to know.

 

[soocool]

Date: 12/8/2009 9:52:15 PM
Author: exoticisabella
Spoke to my tax accountant husband. He said that personal miles on a company car ARE considered a benefit or form of income. He also said that another possible option is for the company to issue your DH a 1099 (I think that''s the form he said

) and the miles would then be considered taxable income. And yes, the company can also write off the miles and the depreciation on the car. Doesn''t seem fair does it?

I have never heard of a company issuing a company employee a 1099. 1099 I thought is for non-employee compensation.

 

[Irishgrrrl]

Date: 12/9/2009 11:21:41 AM
Author: soocool
In a previous job one of my responsibilities included calculations for personal usage of a company''s leased vehicles for the sales force (approx 250 salespeople).

There were 2 kinds of programs, Runzheimer and leased vehicles. In the Runzheimer program, the salesperson actually owned the vehicle and was given a monthly stipend or reimbursement for the cost of the vehicle which included cost of maintaining such a vehicle ( including insurance). These calculations for monthly reimbursement were compiled by Runzheimer and the sales person would claim reimbursement on his/her monthly expense report.

For leased vehicles, the salesperson had to record beginning and ending miles each month and had to claim personal mileage as well. Based on this he/she would be reimbursed the cost of gas based on business usage and he/she would be responsible for cost of gas for personal use. At the end of the year, personal mileage would be calculated as a percentage of total miles placed on the car by that salesperson. This percentage of personal usage would then be used to determine actual benefited cost to the sales person and be put on their final paycheck as taxable income. In a nutshell, if the personal mileage on the leased vehicle was 10% of total miles for that fiscal year, 10% of total cost of that leased vehicle for the fiscal year would be placed on the salesperson final paycheck. (costs include, monthly lease cost, insurance, maintenance such as oil changes, new tires, car washes, etc, but not gas because that was expensed by the sales person). The amount would be added to the final paycheck as taxable compensation. (This will also appear on the W2 form).

Regarding travel to and from office. If your husband has a regular office he travels to each day, then these are normal commuting miles (personal use) and not business miles. If your husband traveled to the airport from home, the regular miles he would travel to work should be deducted from the miles he would travel to the airport to be considered business mileage)

I would check the IRS tax codes for leased vehicles though to make sure that nothing has changed. My DH has a company car and he only uses it for business and claims no personal mileage.

Soocool, THANK YOU! I think the highlighted portion above is what DH''s employer is doing. We got his paystub yesterday, and it didn''t really shed any light on the situation . . . it actually confused us even more! But now that I''ve read your explanation highlighted above, I''m about 95% sure that this is how DH''s employer is handling it. Thanks again for your help!