Car expense for income tax purposes

cpwall

Management employees who are on-call as part of their job responsibilities are assigned a company car. At the end of the year, we deduct the number of personal days that the person has the car (weekends and holidays), compute the car expense for those days (normally around $3/day) and add this cost to the employee's wages as income. I have had a question as to whether the personal use of the car can be added to the income since the person is on-call. I need help to understand how a company owned car, assigned to an employee for use in their position, is treated for wage and tax purposes.

NaeNae55

We haven't had company cars for several years, but when we did the costs were based on miles used, not on days. The employee kept track of all personal use and company use. We used the IRS rate to calculate and added it to payroll as wages. Since the cars were leased and mileage was a factor of the lease, this worked out very well. I have never heard of anyone using days instead. Wish I could be of more help, but I am definitely lost on this one. My only thoughts are that if the employee used the vehicle while they were on-call for company business, that would make that day a company day. If they didn't and the car was available for their personal use, then it would make it an employee day. You might have some employees who claim that they never used it for personal use though. I think being forced to account for all miles used is a much better approach, and can be handled on a monthly or weekly basis (makes the tax bite easier on the employee too). Maybe you can do it the mileage way in 2003.

Good luck!