IRS Sets 2018 Maximums for Valuing an Employer-Provided Vehicle’s Personal Use

The IRS has set the maximum values that limit use of the cents-per-mile and fleet-average valuation rules for employer-provided vehicles first made available to employees for personal use in calendar year 2018. The cents-per-mile rule determines the value of personal use by multiplying the business standard mileage rate (54.5 cents per mile for 2018—see our Checkpoint article) by the number of miles driven for personal purposes. The fleet-average rule allows employers operating a fleet of 20 or more qualifying automobiles to use an average annual lease value for every qualifying vehicle in the fleet when applying the automobile annual lease valuation rule. Both rules are available only if the vehicle’s fair market value does not exceed a dollar limit determined by the applicable regulations. Those regulations, however, were adopted prior to enactment of the Tax Cuts and Jobs Act (see our Checkpoint article), which changed the price inflation measure for automobiles (including trucks and vans) and substantially increased the annual dollar limitation on the depreciation deduction for passenger automobiles.

The notice announces the IRS’s intent to amend the cents-per-mile regulations to set a base maximum value of $50,000 for employer-provided vehicles first made available for personal use in the 2018 calendar year, and to set the same base maximum value for employer-provided automobiles under the fleet-average valuation rules. Under the amended regulations, the $50,000 base value will be annually adjusted for 2019 and later years using the method in Code § 280F(d)(7). Pending those amendments, the 2018 maximum values under both rules will be $50,000. Although the maximum values were calculated separately for trucks and vans in 2017 (see Notice 2017-03), trucks and vans will not have separate maximum values for 2018 and 2019 due to a lack of data. The notice also affirms the continued application of the flexible guidelines in Announcement 85-113 regarding when noncash fringe benefit income is deemed paid. Consequently, employers may use the rules in that guidance, the adjustment process, or the refund claim process, to correct any overpayment of federal employment taxes resulting from application of the cents-per-mile or fleet-average valuation rules as permitted by the notice.

EBIA Comment: Employers generally have four options for valuing an employee’s personal use of a company car: a general valuation rule, the automobile annual lease valuation rule, the cents-per-mile rule, or the commuting valuation rule. Historically, the simple cents-per-mile approach has often been unavailable due to its low value limit. The substantial increase in the limit should open the method up to more employers, but there are still limitations that can make it unavailable—most notably, the vehicle must actually be driven at least 10,000 miles during the calendar year (and that use must be primarily by employees) or the employer must reasonably expect that the vehicle will be regularly used for the employer’s business throughout the year (or while the employer owns or leases the vehicle, if shorter). For more information, see EBIA’s Fringe Benefits manual at Sections IV.B (“What Are the Tax Consequences of a Company Car?”) and IV.C (“How Do the Working Condition Fringe Rules Apply to Company Cars?”).

Contributing Editors: EBIA Staff.