Effectively managing transportation-related payments in your payroll is crucial for companies. By understanding imputed income for personal use of company cars (PUCC), non-taxable mileage reimbursement, and reimbursement for car expenses, you can streamline payroll processes and ensure compliance with tax regulations.
This article primarily aims to explain the concept of PUCC and provide guidance on adding the earning code to your payroll. Additionally, we will touch briefly on the topic of mileage reimbursements.
Personal use of company car
Personal use of company car (PUCC) refers to the situation where an employee uses a company-owned vehicle for purposes other than performing their job. A good example of PUC is when an employee uses the company car on the weekend to go shopping.
When the employee uses a company car for personal reasons, the value of that personal use is considered a taxable fringe benefit. In other words, the employee is receiving a non-cash form of compensation, and this additional value is imputed or attributed to the employee for tax purposes.
To calculate the imputed income related to the personal use of a company car, employers often use the fair market value (FMV) of the personal use. This imputed income is then included in the employee's total compensation for taxes and will be reported on the employee’s W-2.
It's important for both employers and employees to understand the tax implications and regulations related to PUCC, as tax laws may vary by jurisdiction. Employers need to have policies and systems in place to accurately track and report the personal use of company cars.
Please note: Fingercheck can’t assist with determining how to calculate PUCC. Please contact your accountant or CPA to discuss calculating PUCC and other fringe benefits. Check out IRS Publication 15-B for more information on how to calculate PUCC and other fringe benefits.
Create a PUCC earning code
Log in to your Fingercheck account as an Administrator.
Go to SETUP > Payroll > Earnings.
Click Add.
Select a predefined template for Private use of company car:
Click the Add button for that template.
Click OK in the confirmation window that appears to proceed with adding the PUCC earning code.
Click OK in the confirmation window that appears.
Click the X in the top-right corner to close the Add Earnings panel.
The earning code appears in your list of codes.
Non-taxable mileage reimbursement
Non-taxable mileage reimbursement refers to payments made to an employee for the use of their personal car for business purposes. This reimbursement is intended to cover the costs associated with operating and maintaining the employee's personal vehicle for work-related travel. The term "non-taxable" indicates that the reimbursement is not subject to income tax, making it a tax-free benefit for the employee.
To qualify as non-taxable, the mileage reimbursement must adhere to certain rules and guidelines established by the IRS in Publication 15-B. The 2024 IRS approved standard mileage rate that employers can use to calculate the reimbursement is $.67 per mile. This standard mileage rate considers various costs, such as fuel, maintenance, and vehicle depreciation.
Employees often track their business-related mileage and submit it to their employer for reimbursement. The non-taxable nature of this reimbursement is designed to provide a fair and straightforward way for employees to be compensated for using their personal vehicles for work purposes. It is essential for employers and employees to be aware of and comply with IRS regulations to ensure that mileage reimbursements qualify as non-taxable.
For more details on how to set up a mileage reimbursement policy in Fingercheck, check out How to Set Up an Expense Policy to Track Mileage.
FAQ
What is considered personal use of a company car?
Personal use includes any non-business-related use of the company car, such as commuting to and from work, running personal errands, or any other non-work-related travel.
Why is personal use of a company car taxable?
The personal use of a company car is considered a fringe benefit, and the value of this benefit is imputed as taxable income to the employee by tax authorities.
How is the value of the personal use of company car calculated?
The methods employers can use to determine the value of PUCC are general valuation, cents-per-mile, commuting, and lease value.
Can taxation on the personal use of a company car be avoided?
Taxation is generally unavoidable, but employers and employees can minimize tax liability by choosing the most tax-efficient calculation method and adhering to local tax regulations. Please refer to rules and guidelines established by the IRS in Publication 15-B.
Are there any non-taxable mileage reimbursements for personal car use?
Yes, some mileage reimbursements for business-related travel in a personal vehicle may be non-taxable.
How is personal use of a company car reported for my taxes?
The imputed income from the personal use of a company car is typically included on the employee's W-2 form. It's essential to consult with tax professionals for accurate calculation and reporting.
Can the personal use of a company car affect an employee’s overall compensation?
Yes, the imputed income from personal use is considered part of the employee’s total compensation, and it may impact their taxable income.
What records should be kept for personal use of a company car?
Maintain accurate records of business and personal miles driven, along with relevant receipts. This documentation helps support calculations and ensures compliance with tax regulations.
Please note that these answers provide general information, and it's recommended to seek advice from tax professionals for specific situations and tax guidance.
Watch a short video explaining how to set up PUCC in your payroll: