It is not uncommon for employees who use employer-provided vehicles during their workday, to also use the employer-provided vehicles for commuting to and from their work location, and/or to continue using the employer-provided vehicle for personal use during non-work hours. In general, employee use of employer-provided vehicles after working hours may subject employees to taxable wages in the form of additional compensation, or “fringe” income; notwithstanding situations where the employee is generally on-call, and/or is expected to respond to emergency situations from their home or other non-work locations.
In general, the value of an employee’s use of an employer-provided automobile is considered to be a fringe benefit. To the extent the vehicle is used for business purposes, the value of the business use of the vehicle is deemed a “working condition fringe benefit” and therefore, does not constitute compensation to the employee; so long as the business use of the vehicle is adequately substantiated. However, an employee’s personal use of an employer-provided vehicle is generally not considered a “working condition fringe benefit” and therefore is generally considered income taxable to the employee. One exception to this rule applies in the case of an employee’s use of an employer-provided vehicle which is a “qualified nonpersonal use vehicle.” A qualified nonpersonal use vehicle is a vehicle that an employee is not likely to use more than minimally for personal use because of its design. For example, clearly marked police or fire vehicles, cargo vehicles including some trucks or vans with a loaded gross vehicle weight over 14,000 pounds, cement mixers, dump trucks, forklifts, delivery trucks with seating only for the driver, flatbed trucks, and/or passenger and school buses.
Alternatively, if the employer-provided vehicles are not qualified nonpersonal use vehicles, the employer will need to value the personal commuting use of the vehicles and include it as additional wages paid to its employees. Here, the value of an employee’s personal use of an employer-provided vehicle will be treated as additional compensation, which is generally subject to all typical employment taxes and withholdings. There are several valuation methods that can be used for this purpose. One such method, the Commuting Valuation Rule, values the commuting use of an employer-provided vehicle at $1.50 per one-way commute (e.g. from home to work or from work to home). This valuation would also include the value of any goods or services directly related to the vehicle, such as fuel. The Commuting Valuation Rule may only be used if the following criteria are met by the employer and employee with respect to the vehicle:
- (a) The vehicle is owned or leased by the employer and is provided to one or more employees for use in connection with the employer’s trade or business and is used in the employer’s trade or business;
- (b) For bona fide noncompensatory business reasons, the employer requires the employee to commute to and/or from work in the vehicle;
- (c) The employer has established a written policy under which neither the employee, nor any individual whose use would be taxable to the employee, may use the vehicle for personal purposes, other than for commuting or de minimis personal use (such as a stop for a personal errand on the way between a business delivery and the employee’s home);
- (d) Except for de minimis personal use, the employee does not use the vehicle for any personal purpose other than commuting; and
- (e) The employee required to use the vehicle for commuting is not a “control employee” of the employer.
Conclusion
If employer-provided vehicles are qualified nonpersonal use vehicles, the employees’ commuting use of those vehicles could be excluded from the employees’ income. Alternately, for those vehicles that are used for commuting purposes and are not qualified nonpersonal use vehicles, the employer will need to value the personal commuting use of the vehicles and include it as additional wages paid to its employees.
For more information regarding the commuting use (and any other personal use) valuation methods and exceptions to these general rules, please contact the authors or anyone on AALRR’s Business and Tax Team.
This AALRR presentation is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR presentation/publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.
©2022 Atkinson, Andelson, Loya, Ruud & Romo
- Senior Associate
Evan Gautier is a corporate transactional and tax attorney. Mr. Gautier’s practice focuses on mergers and acquisitions, general corporate law including entity formation and corporate governance issues, transactional tax ...
Other AALRR Blogs
Recent Posts
- Update on the California Health Care Minimum Wage
- Resources for California Employers to Track and Confirm Their State and Local Minimum Wage Requirements
- 11 Local Minimum Wage Ordinances Poised to Increase on July 1, 2024
- Fast Food Restaurants -- Be Prepared for a DIR Audit
- U.S. Supreme Court Lowers Bar for Proving Discrimination Claims
- Governor Signs Urgency Legislation Exempting Certain Restaurants from New Fast Food Minimum Wage
- Sexual Violence and Harassment Prevention Training for Janitorial Service Providers Goes Into Effect
- California Supreme Court Strips Trial Court’s Authority to Dismiss Unwieldy PAGA Actions
- California Expands Employee Paid Sick Leave Entitlements Effective January 1, 2024
- California Employers Beware! Arbitration is Waived if Your Payment is Late (Yes, Even by a Day)
Popular Categories
- (153)
- (52)
- (42)
- (37)
- (6)
- (36)
- (23)
- (15)
- (15)
- (24)
- (6)
- (7)
- (6)
- (6)
- (9)
- (6)
- (4)
- (2)
- (3)
- (2)
- (2)
- (2)
- (2)
- (3)
- (3)
- (1)
- (1)
- (2)
- (1)
- (1)
- (1)
- (1)
- (1)
- (1)
- (1)
- (1)
Contributors
- Cindy Strom Arellano
- Sarkis A. Atoyan
- Eddy R. Beltran
- William M. Betley
- Brigham M. Cheney
- Michele L. Collender
- Kevin R. Dale
- Scott K. Dauscher
- Alexandria M. Davidson
- William A. Diedrich
- Paul S. Fleck
- Lauren S. Gafa
- L. Brent Garrett
- Evan J. Gautier
- Carol A. Gefis
- Jennifer S. Grock
- Jonathan Judge
- David Kang
- Nate J. Kowalski
- Joshua N. Lange
- Catherine M. Lee
- Thomas A. Lenz
- David M. Lester
- Martin S. Li
- Jorge J. Luna
- Brian D. Martin
- Ronald W. Novotny
- Michael J. O'Connor, Jr.
- Aaron V. O'Donnell
- Shawn M. Ogle
- Sharon J. Ormond
- Joseph E. Pelochino
- Chesley D. Quaide
- Todd M. Robbins
- Irma Rodríguez Moisa
- Saba Salamatian
- Casandra P. Secord
- Jon M. Setoguchi
- Ann K. Smith
- Amber M. Solano
- Susana P. Solano
- Susan M. Steward
- April Szabo
- Jay G. Trinnaman
- Jonathan S. Vick
- Robert L. Wenzel
- Brian M. Wheeler
- Glen A. Williams
Archives
2024
2023
2022
- November 2022
- October 2022
- September 2022
- July 2022
- June 2022
- May 2022
- April 2022
- March 2022
- February 2022
- January 2022
2021
- November 2021
- October 2021
- September 2021
- July 2021
- June 2021
- May 2021
- April 2021
- March 2021
- February 2021
- January 2021
2020
- December 2020
- October 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- January 2020
2019
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- June 2019
- May 2019
- April 2019
- March 2019
- February 2019
2018
- December 2018
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- March 2018
- February 2018
- January 2018
2017
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- June 2017
- May 2017
- March 2017
- February 2017
2016
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
2015
- December 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- February 2014
- January 2014
2013
- October 2013
- September 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
2011
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- January 2011