Hello Kelly,
If you are paying your employee a set car allowance of $750 each month, and not requiring that employee to account for the actual business use of his car, then the entire $750 must be included in his taxable income. You cannot classify this as a non-taxable fringe benefit.
In order for any amount you pay to your employee for personal use of his car to be non-taxable income, the amounts must be paid under an accountable plan -- meaning the employee must turn in an itemized expense report to you to show the actual miles he drove for company business. The report should include the dates of travel, place visited, purpose of trip and total miles driven. You may then reimburse that employee up to 55 cents per mile for the business miles driven. Any amount you give him which exceeds the 55 cents per mile must be included in his taxable income.
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Thank you Kelly
A TFB would still hold true if we call it an "Auto/Gas" allowance?
Otherwise, I need to use the mileage rule?
Hello again Kelly,
Regardless of what you call the allowance, it will be taxable unless you make the payments to your employee under an accountable plan.
If the employee does not provide you with any accounting of how he used his vehicle for company business, then any amount you pay him is taxable income. If he provides you with an accounting of business miles driven, you may reimburse him up to 55 cents per mile, and the reimbursements do not need to be included in his taxable income. Any amounts you give him which exceed 55 cents per mile must be included in his taxable income.
This is not based on whether you call it a car allowance or a gas allowance. It is based on the fact that you are paying him an amount to cover a company expense, and if the expense is not accounted for then it must be included in his taxable income.
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Accountant
25+ years tax consulting. Specializing in returns for US citizens living abroad