How the TCJA and Updated Rules for Personal Use of Employer-Provided Vehicles Will Benefit Employers
- Wednesday, June 5, 2019
The IRS recently announced the inflation-adjusted maximum fair market value (FMV) of an employer-provided vehicle under the vehicle cents-per-mile and fleet-average special valuation rules. Employers can use these rules to value an employee’s personal use of such a vehicle for income and employment tax purposes. Importantly, the new values reflect vehicle-related amendments in the Tax Cuts and Jobs Act (TCJA) and the IRS’ intent to make the rules more widely available to employers.
How to Value the Personal Use of an Employer-Provided Vehicle
When an employer provides an employee with a vehicle that’s also available for personal use, the employer must include the FMV of the personal use in the employee’s income. In general, the FMV is the amount the employee would have to pay a third party to lease the same or similar vehicle on the same or comparable terms in the geographic area in which the employee uses the vehicle. Employers can use the following methods to determine FMV:
Note the fleet-average value rule or the simple cents-per-mile rule is not available, though, if the FMV of the vehicle exceeds a certain base value, adjusted annually for inflation, on the first date the vehicle is made available to the employee for personal use. In 2017, the maximum value for the cents-per-mile rule was $15,900 for a passenger automobile and $17,800 for a truck or van. The maximum value for the fleet-average value rule in 2017 was $21,100 for a passenger automobile and $23,300 for a truck or van.
Taxpayer-Favorable Changes Made by the TCJA
The 2018 base values were significantly raised earlier this year, in IRS Notice 2019-08, to reflect amendments made by the TCJA, which changed the price inflation measure for automobiles (including trucks and vans). The TCJA also substantially increased the maximum annual dollar limitations on the depreciation deductions for passenger automobiles, basing the latter on the depreciation of a passenger automobile with a cost of $50,000 (up from $12,800), inflation adjusted annually, over a five-year recovery period.
What Is the Value of a Vehicle in 2019?
Most recently, in IRS Notice 2019-34, the IRS announced the adjusted values for 2019. For vehicles and automobiles first made available to employees for personal use in calendar year 2019, the maximum value under both rules is $50,400. Under planned amendments to the applicable regulations, these maximum values will be the same as the maximum standard automobile cost that determines eligibility to set reimbursement allowances under a fixed and variable rate plan — an alternative to the business standard mileage rate.
Additional Requirements for Determining Value of an Employer-Provided Vehicle
Satisfying the maximum value limit isn’t enough for an employer to use the cents-per-mile rule or the fleet-average value rule to value an employee’s personal use of a vehicle. Both rules come with other requirements that can prove difficult to meet. For example, the cents-per-mile rule generally is available only if the employer reasonably expects the vehicle to be regularly used in its trade or business throughout the calendar year or the vehicle meets the mileage test under Treas. Reg. 1.61-21(e)(1)(ii). Talk with your tax advisors to help you determine the best valuation method for your circumstances.