The personal use of an employer's vehicle should be reported
in Box 1 of the W-2 (W2).
If 100% of the Annual
Lease Value is reported as personal use of the business auto in W-2 Box 1, you
should also report that amount, and properly describe it in W-2 Box 14.
The Annual Lease Value is one of several methods of computing the auto
fringe benefit. The other methods are the Cents-Per-Mile Rule, the Commuting
Rule and the General Rule.
"Shameless commercial plug:"
If less than 100% is personal use, you are much better off only reporting the personal use of the vehicle in
Box 1. Rather than reporting any personal use in Box 14, provide your an
employee with a computation.
You can, but don't have to, withhold federal and state
income taxes on the personal use of the company car. If you don't withhold on
this fringe benefit, your employee might get hit with taxes due on April 15th.
You MUST report any
Social Security and Medicare tax withholding for the personal use of the business
vehicle. This can be a real problem, if the fringe benefit is computed
late in the year, or, even worse, after December 31. One solution is to have the
employee write a check or reimburse the company for the Social Security and
Medicare that should have been withheld on the personal use of the company car.
This has a way of making the employee very angry.
A better solution is to have the fringe benefit amount "grossed up" for the
Social Security and Medicare taxes. (This is sometimes called a "FICA gross up,"
a "Social Security tax gross up," or a "Medicare tax gross up.") This leads to much less employee anger, but
it is a more difficult computation.
To compute the Social Security and Medicare tax gross up,
you must compute the Social Security and Medicare tax on the fringe benefit and
on the Social Security and Medicare tax that the employer is paying for the
employee. The Employee Auto Compensation Analyzer will make the
computation easily for you. It will also compute the fringe benefit for personal
use of the company vehicle for you using any of the approved methods!