What Is a Company Car Worth in Income?
- In general, the income value of a fringe benefit is equal to the fair market value of the benefit. The IRS states that fair market value is the amount an employee would have to pay a third party for the benefit. The fair market value of a company-provided vehicle is essentially the cost an employee would have to pay to lease a similar vehicle on comparable terms to which he uses the company car for personal reasons.
- While fair market value estimates the income value of many fringe benefits, there are other methods of calculating the income value of the use of a company car. The IRS says that employers may use the "cents-per-mile" rule to calculate the income value of an employee's use of a company car if at least half of the vehicle's miles are attributable to business activities during the year or if the car is driven at least 10,000 miles a year and is primarily used by employees. The cents-per-mile rule allows you to calculate the income value of using a company car by multiplying the total number of miles driven for personal purposes by a standard mileage rate. The IRS states that the standard mileage rate is 51 cents per mile for 2011.
- If employees are required to use a company car for commuting to and from work and do not use the car for other personal uses, the income value of the benefit can be calculated using the commuting rule. The IRS says that the value of a company car under the commuting rule is $1.50 for each one-way commute. In other words, if you use the car to go to and from work every day, the income value of using the car is $3 a day.
- Since the personal use of a company car is taxable income, using a company car will reduce your total cash compensation. For example, if your use of a company car amounts to a benefit worth $5,000 a year you must pay taxes at an income level that is $5,000 more than your actual cash salary.
