One of the most popular fringe benefits for employees at many organizations is not an insurance plan or a health club membership; it is shiny chrome and steel — a vehicle. Providing a car, van, or truck that an employee can use for both work and personal purposes can attract better job candidates or just make sense practically. If your organization offers such a fringe benefit, you should know that the IRS recently updated its valuation limit for employer-provided vehicles.
Read the notice
Generally, you must include the value of an employer-provided vehicle that is available for personal use in an employee’s income and wages. The personal use may be valued using the cents-per-mile or fleet-average valuation rules for the 2019 calendar year.
Because of tax law changes under the Tax Cuts and Jobs Act (TCJA), the maximum dollar limitations on the depreciation deductions for passenger automobiles significantly increased and the way inflation increases are calculated changed. In Notice 2019-8, issued early this year, the IRS and the U.S. Treasury Department noted their intention to amend regulations to incorporate a higher base value of $50,000 to be adjusted annually.
Then, in May the IRS issued Notice 2019-34. It provides that, for 2019, the maximum fair market value (FMV) of a vehicle (including cars, vans, and trucks) for use with the vehicle cents-per-mile and fleet-average valuation rules is $50,400.
Because current regulations have not yet been updated to reflect the changes under the TCJA, the IRS provides relief to taxpayers in the form of interim guidance for 2019 in the notice. The agency (along with the Treasury Department) intends to revise the rules for the 2018 and 2019 tax years.
One example of the intended revisions addresses what an employer should do if it did not qualify to adopt the vehicle cents-per-mile valuation rule on the first day on which a vehicle was used by an employee for personal use because, under the rules in effect before 2018, the vehicle had an FMV more than the maximum permitted. In such cases, the employer will be allowed to first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year based on the maximum FMV of a vehicle for purposes of the vehicle cents-per-mile valuation rule.
Another intended revision noted in Notice 2019-34 will permit an employer to adopt the fleet-average valuation rule for the 2018 or 2019 tax year if the employer did not qualify to use the fleet-average valuation rule before January 1, 2019, because the maximum value limitation before 2018 could not be met.
Rely on the guidance
Until revised final regulations are published, taxpayers may rely on the interim guidance provided in Notice 2019-34. Our firm can help you fully understand both the interim guidance and any future revisions to the rules for employer-provided vehicles.