Non-taxable fringe benefit disappearing

The Tax Attic with Jerry Coon — February 25, 2010

February 25, 2010 // 0 Comments

Non-taxable fringe benefit disappearing   A non-taxable fringe benefit that appears to be disappearing is the employer-provided vehicle. This type of fringe benefit is called a Working Condition Fringe. It is non-taxable to the employee, because the expense is a deductible business expense whether the employee or the employer is paying for the auto. For example, General Motors supplies a vehicle to its Grand Rapids regional marketing director. This is a deductible business expense for General Motors on their corporate tax return or, if the director was using his personal auto in his capacity as a General Motors employee, the expenses would be deductible on his personal 1040. Because the company is supplying the auto, the expenses are considered non-taxable to the director. It’s a legitimate Working Condition Fringe. As long as there is no element of personal usage by the director, none of the expenses of the auto will be taxable to him. However, if there is an element of personal usage, there will be some taxable income allocated to the director. Just what constitutes an “element of personal usage”? The most common element of personal usage occurs when the employee has 24-hour access to the auto, personal use of the auto is not specifically forbidden by the employer, and the employee does incur some personal usage of the auto. In the example above, because the director is expected to visit dealerships and attend various conferences which entail many overnight stays, General Motors assigns to the director a vehicle for his exclusive 24-hour use. General Motors does not forbid him from using the auto for personal use and he does use the auto occasionally to run personal errands. There will be some taxable income allocated to the director in this case. Last year, he put 30,000 total miles on the auto. Of this total, 4,500 miles, or 15%, were for personal use. It cost General Motors $15,000 to operate his vehicle for the year. Without any personal usage, this would all be considered a Working Condition Fringe benefit and non-taxable to the director. However, we have to deal with those 4,500 personal miles. General Motors has a variety of methods it can use to calculate the taxable amount of the personal usage. First, it […]