Dear Clients & Friends:
The Internal Revenue Service requires records to be maintained regarding business mileage in order to claim deductions for expenses related to the use of a passenger automobile for business purposes.
In fact, the IRS has been winning cases in Tax Court by challenging records maintained by taxpayers regarding documentation of automobile use. It is imperative that you understand and comply with the recordkeeping requirements. IRS Publication 463 provides detailed information regarding recordkeeping. In general, the requirement is to maintain some contemporaneous log of business automobile use. Mileage written on a calendar is not sufficient if it also does not provide the “who, what and why” of the business purpose of the travel.
Mileage related to personal use of a business automobile must be valued according to various IRS regulations and included as compensation on the employee’s W-2. This mileage information is required to be reported on your business tax return for vehicles used by more than 5% owners of a corporation. If you provide vehicles to non-owner employees, you may be required to disclose mileage information on those vehicles as well. These provisions apply to owned as well as leased vehicles.
In order to assist you in complying with IRS regulations, we have two worksheets for your use.
– Worksheet 1 is for the employee to complete and sign to document the business/personal mileage
information. This is also the information required to be reported on the business tax return.
– Worksheet 2 is used to compute the taxable value of the mileage based on the fair market value of the
vehicle. This is the amount that is deemed to be additional compensation required to be included on the employee’s W-2.
We suggest that you distribute copies of Worksheet 1 to affected employees as soon as possible. We suggest the worksheets should be completed based on an annual reporting period beginning December 1 and ending November 30 (or any other annual period you choose). It is important that employees return the completed forms as soon as possible, but in no event later, than the last payroll date for the calendar year. This is necessary because the additional compensation, which will be added to the employee’s taxable wages, will result in required withholding of FICA, Medicare and, if elected, federal and state income tax. The employer cannot pay the employee’s portion of this tax without it becoming additional compensation, so the employee must have other cash wages from which to withhold the tax. If desired, the effect on the net pay of the employee can be eliminated by grossing up any non-cash compensation.
Please use the worksheets and information in this letter to include the correct amount of compensation on your employee’s 2015 W-2’s. If your payroll is processed by Robert F. Murray & Co., please return the completed sheetsbefore your last regular payroll date for 2015. If your payroll is processed by a third party such as Paychex, please check with them regarding the procedures and timing for making these adjustments. Of course, we would be glad to assist you in coordinating this if you choose.
If you have any questions or if we can assist you in any other way, please do not hesitate to contact us.
TABLE R204: Annual Lease Value Table for Employer‐provided Autos
This table can be used to value the personal use of employer‐provided autos. a (See Key Issue 10M.) Multiply the table value by the personal‐use percentage (based on allocation of personal and business miles driven) when the annual lease value method is selected by the employer to value the fringe benefit. The product of the personal‐use percentage, the portion of the year the auto was provided to the employee, and the annual lease value (based on the FMV of the auto) must be included in the employee’s gross income as wages subject to FICA. Employers can elect to not withhold FIT.
The auto’s FMV when first provided to the employee is used to determine the annual lease value for each of the first four full calendar years of use by an employee. In the fifth full calendar year the auto is used, the FMV is redetermined and a new annual lease value is calculated, which is then used for the second four‐year period.