Whenever I am holding an audio seminar or webinar on fringe benefits one question I can always count on deals with auto allowances. It seems that a lot of people think that because they are giving the employee the money to cover the business use of a personal vehicle that it is all nontaxable to the employee no matter how much they give them. Unfortunately, that ain’t so.
Every year the IRS sets the mileage rate. This year it is 50¢ per mile. That means that as an employer you can reimburse an employee up to that amount for every mile they drive their own car on company business. But the IRS isn’t going to take your word for it on the mileage. There must be records and logs to show the nature of the trip, the amount of miles driven etc before reimbursement can be done. Then it is number of miles driven times the current rate for mileage. Anything else is taxable income. And that’s where the disconnect seems to be with auto allowances.
Employers tend to give flat amounts to employees such as sales staff for the business use of their personal car and then drop the ball thinking that as long as it’s for mileage that should be it. But what actually has to happen is that the employee must put down all miles driven and the nature of the trip in a log. Then the total miles has to be multiplied by 50¢ for this year. That is what you can reimburse the employee. If you give a flat amount each month, you have to compare the amount you gave against the actual mileage log calculation for the same month. If it is less than the amount you gave the employee, then the employee has to give that overage back or be taxed on it.
And no it doesn’t even out over time. Once you calculate the miles in the log it goes against the month the monies were paid. For example I gave a member of the sales staff $500 for the month of June as an auto allowance. He drove, according to the log he gave me, 952 miles for business reasons. Do the math: 952 miles x $.50 = $476.00. He had to give back $24 or I have to run it through payroll. It is that simple.
Now trying to get sales people to keep the logs accurately, and turn them in on time, now there’s something that ain’t so simple!
How do you do it on your payroll?