3.8 Company Cars, Parking, and Transit Passes
The costs of commuting to a regular job site are not deductible (20.2), but employees who receive transit passes or travel to work on an employer-financed van get a tax break by not having to pay tax on some or all of such benefits. Where a company car is provided, the value of personal use is generally taxable, as discussed below.
Company cars.
The use of a company car is tax free under the working condition fringe benefit rule (3.9) to the extent you use the car for business. If you use the car for personal driving, your company has the responsibility of calculating taxable income, which generally is based on IRS tables that specify the annual lease value of various priced cars. You are also required to keep for your employer a mileage log or similar record to substantiate your business use. Your employer should tell you what type of records are required.
Regardless of personal use, you are not subject to tax for a company vehicle that the IRS considers to be of limited personal value. These are ambulances or hearses; flatbed trucks; dump, garbage, or refrigerated trucks; one-passenger delivery trucks (including trucks with folding jump seats); tractors, combines, and other farm equipment; or forklifts. Also not taxable is personal use of school buses, passenger buses (seating at least 20), and moving vans where such personal use is restricted. Exclusions are also allowed for commuting use of a clearly marked police, fire, or public safety officer vehicle by officers required to be on call at all times, and for officially authorized uses of unmarked vehicles by law enforcement officers.
Planning Reminder
Demonstration cars.
The value of a demonstration car used by a full-time auto salesperson is tax free as a working condition fringe benefit if the use of the car facilitates job performance and if there are substantial personal-use restrictions, including a prohibition on use by family members and for vacation trips. Furthermore, mileage outside of normal working hours must be limited and personal driving must generally be restricted to a 75-mile radius around the dealer’s sales office.
Chauffeur services.
If chauffeur services are provided for both business and personal purposes, you must report as income the value of the personal services. For example, if the full value of the chauffeur services is $30,000 and 30% of the chauffeur’s workday is spent driving on personal trips, then $9,000 is taxable (30% of $30,000) and $21,000 is tax free.
If an employer provides a bodyguard-chauffeur for business security reasons, the entire value of the chauffeur services is considered a tax-free working condition fringe benefit if: (1) the automobile is specially equipped for security and (2) the bodyguard is trained in evasive driving techniques and is provided as part of an overall 24-hour-a-day security program. If the value of the bodyguard-chauffeur services is tax free, the employee is still taxable on the value of using the vehicle for commuting or other personal travel.
How your employer reports taxable automobile benefits.
Social Security and Medicare tax must be withheld. Income tax withholding is not required, but your employer may choose to withhold income tax. If income tax is not withheld, you must be notified of this fact so that you may consider the taxable benefits when determining whether to make estimated tax installments; see Chapter 27. Whether or not withholdings are taken, the taxable value of the benefits is entered on your Form W-2 in Box 14 or on a separate Form W-2 for fringe benefits.
A special IRS rule allows your employer to include 100% of the lease value of using the car on Form W-2, even if you used the car primarily for business. Your employer must specifically indicate on Form W-2 (Box 14) or on a separate statement if 100% of the lease value has been included as income on your Form W-2. If it has, you should compute a deduction on Form 2106 for the business-use value of the car. However, this deduction, plus any unreimbursed car operating expenses, may be claimed only as a miscellaneous itemized deduction on Schedule A subject to the 2% AGI floor (19.1).
Company planes.
Under rules similar to those for company cars, employees who use a company airplane for personal trips are taxable on the value of the flights, as determined by the employer using IRS tables.
Qualified Transportation Benefits
Your employer may provide you with transportation benefits that are tax free within certain limits. There are three categories of qualified benefits: (1) transit passes and commuter transportation in a van, bus, or similar highway vehicle are considered together, (2) parking, and (3) bicycle commuting reimbursements.
You may receive benefits from each category so long as the applicable monthly limit (see below) is not exceeded. If the benefits exceed the monthly limit, the excess is treated as wages subject to income tax, Social Security, and Medicare tax.
Planning Reminder
Transit pass/commuter transportation benefits and parking benefits may be provided through a salary-reduction arrangement. An irrevocable salary-reduction election may be made prospectively for a monthly amount of benefits. The salary reduction for any month may not exceed the total limit for both categories. Unused salary reductions may be carried over to later months and from year to year. However, if you leave the company before using the carryover, the unused amount is forfeited; you cannot get a refund.
Employer-provided transit passes and van/bus transportation.
The combined value of employer-provided transit passes plus commuting in an employer’s van or bus is tax free in 2012 up to $125 per month (down from $230 per month in 2011). If the value of benefits for any month does not equal the exclusion limit, the unused amount is lost and may not be carried over to other months.
Law Alert
Qualifying transit passes include tokens, fare cards, or vouchers for mass transit or private transportation businesses using highway vehicles seating at least six passengers.
A cash reimbursement for a transit pass is taxable if vouchers (or similar items) are readily available to the employer for distribution to employees. “Ready availability” is determined under tests in IRS regulations. Cash advances are taxable.
Qualifying van or bus pool vehicles must seat at least six passengers and be used at least 80% of the time for employee commuting; on average, the number of employees must be at least half the seating capacity.
The exclusion applies only to regular employees. For partners, more than 2% S corporation shareholders, and independent contractors who are provided transit passes, the IRS allows up to $21 per month as a tax-free de minimis benefit. If the monthly value exceeds $21, the full value is taxable and not just the excess over $21.
Parking provided by employer.
For regular employees, the value of employer-provided parking spots or subsidized parking is tax free in 2012 up to a limit of $240 per month. Parking must be on or near the employer’s premises, at a mass transit facility such as a train station or car pooling center. The value of parking benefits exceeding $240 per month is taxable in 2012. For 2013, the $240 monthly cap may be adjusted for inflation.
According to the IRS, parking benefits are to be valued according to the regular commercial price for parking at the same or nearby locations. For example, if an employer in a rural or suburban location provides free parking for employees and there are no commercial parking lots in the area, the employee parking is tax free. Where free parking is available to both business customers and employees, the employee parking is considered to have “zero” value unless the employee has a reserved parking space that is closer to the business entrance than the spaces allotted to customers.
If the value of the right of access to a parking space for a month in 2012 exceeds $240, an employee will be taxed on the excess even if he or she actually uses the space for only a few days during the month.
If the employee pays a reduced monthly price for parking in 2012, there is a taxable benefit for that month only if the price paid plus the $240 exclusion is less than the value of the parking.
Commuter parking benefits for self-employed partners, independent contractors, or more-than-2% S corporation shareholders do not qualify for the $240 exclusion but may qualify as a tax-free de minimis benefit (3.10).
Employer-reimbursed bicycle costs.
A limited exclusion is allowed for employer reimbursements of qualified bicycle commuting costs of employees. Reimbursements for the cost of a bicycle used for commuting, and for storing, repairing and improving the bicycle, are tax free up to $20 per qualifying month. A qualifying reimbursement may be made until March 31 of the following year.
However, qualifying month restrictions may block the bicycle benefit. The $20 monthly exclusion is allowed only for months in which the employee (1) regularly uses the bicycle for a substantial portion of the commute from home to the place of employment, and (2) does not receive either transit pass/commuter vehicle benefits or parking benefits.
Because of the second condition, an employee who bicycles from home to a train or bus station and continues his or her commute from there cannot get the $20 a month bicycle benefit for any month for which he or she takes advantage of the transit pass/commuter vehicle benefit.