A great way to improve productivity and employee happiness is to have employees use a company vehicle. But, it brings up questions about taxes and reporting. Here’s what to know about the personal use of company car (PUCC).
What is PUCC?
The acronym stands for Personal Use of a Company Car. PUCC has tax implications and can impact what records you’re supposed to keep.
What’s considered personal use of a company vehicle?
When operating includes using a company car for personal reasons. Some examples are running personal errands, using it on the weekends, having your spouse borrow the car and for commuting to and from work.
Is personal use of a company vehicle a taxable benefit?
Yes, the IRS considers the personal use of a company vehicle a taxable noncash fringe benefit. Businesses must calculate the value of this and include it on employee wages. A business must also withhold taxes on PUCC.
What’s a fringe benefit?
The IRS defines a fringe benefit as “a form of payment for the performance of services.” The first example it lists is the personal use of a company car. But, this includes other things like paid cafeteria services and more.
How much is a company car worth a year?
You must determine the fair market value of the vehicle’s usage for the year and withhold applicable taxes. The fair market value or FMV is the reasonable amount an employee would pay a third-party to buy or lease the vehicle.
How to calculate FMV?
You can calculate the FMV through a variety of methods including:
- The Cents-Per-Mile rule: Value personal usage at the business mileage rate of 58 cents per mile, which is the standard mileage rate for 2019.
If you use the cents-per-mile rule, you must use it from the first day your employee has personal use of the vehicle. You must also use cents-per-mile rule for all later years (as long as the vehicle qualifies).
Moreover, you must also continue to use this rule if you replace the vehicle for the employee if your primary reason for the replacement is to reduce your taxes.
What records should I keep for personal use of a company car?
A mileage log will provide adequate records if you’re using the cents-per-mile method.
Is business use of a company vehicle taxable?
No, this is considered a working condition fringe benefit. This use isn’t compensation nor taxed. An example of this would be a repair person who picks up and drops off a company vehicle exclusively for business purposes.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.