Informational Circular 05-P-023
Appendix A
(Revised 02/05)
IRS APPROVED METHODS OF REPORTING FRINGE BENEFIT INCOME
- Annual Lease Valuation Rule (This method can be used by any employee.)
The fair market value of the vehicle will be determined through the use of a reliable method (such as
the NADA Used Car Guide or the NADA website at www.nada.com). The fair market value should also include
all purchase expenses such as sales tax and title fees. The annual lease value will be taken from the
following IRS table:
Value
Category
| |
Automobile Fair
Market Value
| |
Annual
Lease Value
| |
Biweekly
Lease Value |
A |
|
$ 0 |
-- |
999 |
|
$ 600 |
|
$ 23.08 |
B |
|
1,000 |
-- |
1,999 |
|
850 |
|
32.69 |
C |
|
2,000 |
-- |
2,999 |
|
1,100 |
|
42.31 |
D |
|
3,000 |
-- |
3,999 |
|
1,350 |
|
51.92 |
E |
|
4,000 |
-- |
4,999 |
|
1,600 |
|
61.54 |
F |
|
5,000 |
-- |
5,999 |
|
1,850 |
|
71.15 |
G |
|
6,000 |
-- |
6,999 |
|
2,100 |
|
80.77 |
H |
|
7,000 |
-- |
7,999 |
|
2,350 |
|
90.38 |
I |
|
8,000 |
-- |
8,999 |
|
2,600 |
|
100.00 |
J |
|
9,000 |
-- |
9,999 |
|
2,850 |
|
109.62 |
K |
|
10,000 |
-- |
10,999 |
|
3,100 |
|
119.23 |
L |
|
11,000 |
-- |
11,999 |
|
3,350 |
|
128.85 |
M |
|
12,000 |
-- |
12,999 |
|
3,600 |
|
138.46 |
N |
|
13,000 |
-- |
13,999 |
|
3,850 |
|
148.08 |
O |
|
14,000 |
-- |
14,999 |
|
4,100 |
|
157.69 |
P |
|
15,000 |
-- |
15,999 |
|
4,350 |
|
167.31 |
Q |
|
16,000 |
-- |
16,999 |
|
4,600 |
|
176.92 |
R |
|
17,000 |
-- |
17,999 |
|
4,850 |
|
186.54 |
S |
|
18,000 |
-- |
18,999 |
|
5,100 |
|
196.15 |
T |
|
19,000 |
-- |
19,999 |
|
5,350 |
|
205.77 |
U |
|
20,000 |
-- |
20,999 |
|
5,600 |
|
215.38 |
V |
|
21,000 |
-- |
21,999 |
|
5,850 |
|
225.00 |
W |
|
22,000 |
-- |
22,999 |
|
6,100 |
|
234.62 |
X |
|
23,000 |
-- |
23,999 |
|
6,350 |
|
244.23 |
Y |
|
24,000 |
-- |
24,999 |
|
6,600 |
|
253.85 |
Note: The IRS regulation contains further values for vehicles up to $59,999.
By applying the "NADA" value to the make, year and model data for a vehicle, the biweekly
lease value can be determined.
Please note that the annual lease values from the table are based on a 4-year lease term.
The lease value will generally stay the same for the period that begins with the first date you use
this special rule for the automobile and ends on December 31 on the fourth full calendar year following
that date.
If an automobile is provided to an employee for a continuous period of 30 or more days but less than
an entire calendar year, the annual lease value can be prorated. Compute the annual lease value by
multiplying the annual lease value by the number of days of availability then divide by the total number
of days in the year.
The following table lists the NADA fair market value by category of the most popular vehicles in the
Central Motor Pool at the time of its closure.
Popular State-Owned Vehicles Value Category:
|
Model Year |
Make/Model |
03 |
02 |
01 |
00 |
99 |
98 |
97 |
Chevrolet: |
|
|
|
|
|
|
|
Cavalier |
|
H |
G |
F |
E |
|
|
Malibu
|
|
J |
|
|
|
|
|
Dodge: |
|
|
|
|
|
|
|
Caravan |
O |
L |
K |
H |
|
F |
|
Neon |
|
|
|
|
|
D |
|
Stratus |
K |
|
|
|
|
|
|
Ram 1/2 Ton
|
|
|
K |
J |
|
H |
|
Ford: |
|
|
|
|
|
|
|
Aerostar |
|
|
|
|
|
|
D |
Crown Vic |
|
|
|
K |
I |
H |
F |
Styleside 1/2 Tone (4x4) |
P |
|
|
|
|
G |
F |
Taurus
|
L |
J |
H |
G |
F |
|
D |
Plymouth: |
|
|
|
|
|
|
|
Voyager |
|
|
|
|
G |
|
|
Neon |
|
|
|
|
|
|
C |
Under this method, the employee is required to keep a trip log or other documentation record of business
mileage (by odometer readings) recorded at or near the time the trip occurs. The balance of the total
mileage driven, i.e., the difference between the end of the biweekly pay period and odometer reading
at the beginning of the period, less the total business mileage recorded will be considered personal
use.
Please note, the only personal use of a state vehicle allowed under state law, and then only in limited
situations, is to commute between the employee's work station and their home.
At the end of each biweekly period, the trip log (record) will be totaled. The total mileage computed
for the period minus the total logged business mileage will determine the personal use mileage.
The personal mileage will be divided by the total mileage to determine the personal mileage ratio
or percentage. This personal mileage percentage will be applied to one-twenty sixth of the "annual
lease value" and the result plus an additional amount of 5.5 cents per mile for personal use for
fuel for the vehicle will be the biweekly amount to be reported as fringe benefit income of the employee
for taxation purposes.
If this method is utilized, you must use the rule for all later years in which the automobile is available
to any employee, except that you may use the commuting rule for any year during which use of the automobile
qualifies.
- Commuting Valuation Method (This method can not be used by control employees.)
This method may be used only if all the following requirements are met:
- The employer owns or leases the vehicle and provides it to one or more employees for
use in the employer's trade or business.
- For a bona fide non-compensatory business reason, the employer requires the employee to commute
in the vehicle.
- The employer establishes a written policy that limits the personal use of the vehicle to commuting
and de minimis use (such as a stop for lunch between business stops).
- The employee does not use the vehicle for any personal purpose other than for commuting and de
minimis use.
- The employee is not a control employee. Treasury Regulation 1.61-21(f)(6) defines a control employee
of a government employer as 1) any elected official, or 2) any employee whose compensation equals
or exceeds that of a federal employee at Executive Level V (for 2005, this amount is $131, 408.00).
Under this alternate method, the commuting has an imputed value (by the IRS) of $1.50 for each one-way
trip from home to work or from work to home.
If the commuting rule is adopted on the first day you make an automobile available to any employee
for personal use; you may change to either the annual lease rule or the cents-per-mile rule on the
first day the commuting rule is no longer used.
-
Cents-Per-Mile Valuation Rule (This method can be used by any employee if the conditions listed below
are met.)
The Cents-Per-Mile Valuation Rule is the third option available to agencies for use in computing
the taxable personal (commuting) use of state-owned or leased vehicle. To be eligible for
this method, at least 50% of the vehicle's total mileage is used for the employer's trade
or business, or the vehicle is primarily used by employees and the total mileage for the
vehicle for the year exceeds 10,000 miles. The 10,000 miles can be comprised of both business
and personal (commuting) miles or can be entirely personal (commuting) miles. Please
note that you cannot use the Cents-Per-Mile rule for an automobile first made available to
an employee for personal use in 2005 if the fair market value of the vehicle exceeds $14,800.00.
Advantages of this method are that it is easy to use, and it may result in a lower value for taxable
personal use. The disadvantage is the necessity to maintain a daily travel log to substantiate
the business/personal use mileage. See Appendix C for a sample daily travel log.
The IRS approved mileage rate for use in the "Cents-Per-Mile Valuation Rule" is
40.5 cents per mile beginning January 1, 2005. Please note that this Informational Circular
does not impact the State's privately owned vehicle mileage reimbursement rate.
Once adopted, the cents-per-mile should continue to be used for all later years in which the automobile
is still available to the employee and the automobile qualifies. However, the commuting rule can be
used for any year in which the automobile qualifies. If the vehicle does not qualify for the cents-per-mile
rule during a later year, any other special rule can be adopted for that year and the years thereafter
for which the vehicle qualifies.
EXAMPLES
Following are some typical situations and how they would be handled:
- Annual Lease Valuation Method:
Employee A has a state vehicle (2002 Chevy Cavalier) assigned all year and must record mileage and report
fringe benefit income based on the annual lease method. The "fair market value" of the vehicle
from the "NADA" book is between $7,000 and $7,999 (value category "H"). The mileage
log for the pay period indicates that a total of 1400 miles were traveled, of which 350 miles was for
commuting. The annual lease value of the vehicle is $2,350 (per the table). The calculation of the biweekly
fringe benefit income is as follows:
Biweekly
Lease
Value |
X |
Personal Miles
Total Miles |
+ |
Fuel
Addition |
= |
Fringe
Benefit
Income
|
2,350
26 |
X |
350
1400 |
+ |
(350 X $.055) |
= |
$41.85 |
- Commuting Valuation Method
Employee B has a state vehicle assigned all year and chooses the "Commuting Valuation Method"
of reporting the fringe benefit income. The biweekly pay period from June 1 - June 14 has 10 regularly
scheduled workdays, so the employee would report $30.00 (10 X [1.50 X 2]) for the period.
- Commuting Valuation Method:
Same as "B," except Employee B takes a two-week vacation during the month of which only one
week is during the current biweekly, pay period. Employee B would report $15.00 (5 X [1.50 X 2]) for
the period. No fringe benefit income would be reported if the two-week vacation corresponds with the
biweekly payroll period.
- Commuting Valuation Method:
Employee C commutes to and from the office in a state vehicle. This has been requested by the employer
since there is no safe place to park the vehicle overnight at the official station. The vehicle has a
fair market value of $16,000.00 and was placed into service in January 2005. In this situation, Employee
C would report fringe benefit income utilizing either the commuting method or the annual lease method.
If the commuting method were used, the computation would be similar to "B" above.
- Commuting Valuation Method:
Employee D rents a vehicle from Enterprise Rental Car in Topeka on Monday. Since Employee D wants to
get an early morning start on the official trip to Hays, the employee drives the vehicle home on the
evening before the trip commences. Early the next morning (Tuesday), the employee drives to Hays and
returns to Topeka Wednesday evening. Because the employee arrives late, the vehicle is kept at his home
overnight (Wednesday) and returned to Enterprise on Thursday morning. The fringe benefit income utilizing
the commuting method would be $3.00 ($1.50 for the trip home on Monday and $1.50 for the trip to the
work place on Thursday).
- Cents-Per-Mile Valuation Method
Employee E is allowed to use a state vehicle for commuting. During the biweekly pay period, Employee
E drove the state vehicle 100 personal miles, based upon daily trip log recordings and the biweekly work
sheet computations. All of the gasoline was furnished by the state agency. The reportable fringe benefit
income using the cents per mile valuation rule would be $40.50 (100 X $ .405) for the pay period.
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