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Is a Personal Use Charge Right for Your Fleet?

August 2017, by John Shevlin, Director of Taxation

In the words of Benjamin Franklin, “in this world nothing can be said to be certain, except death and taxes.”

And when it comes to taxes, having a company car is no exception. The Internal Revenue Service (IRS) will tax people on anything that is considered a “fringe benefit,” including the value of a company-provided vehicle. The IRS specifically targets the vehicle’s use for personal reasons.

So, that’s the bad news for your drivers. There is no way of getting around it.

The good news for employers is, through a personal use charge, there is a way for your company to recoup some of the costs of running your fleet. The ever-increasing expense of operating a fleet is leading companies to look for ways to cut costs. A personal use charge is a valid method.

To start, you should first understand what personal use is and why it matters to your company. Personal use is any use of a company-provided vehicle for non-business purposes, including but not limited to commuting, personal errands, vacations and more. While the vehicle is being driven, it incurs excess wear and tear above and beyond that which would be accrued if the usage had been limited to business purposes only.

Although enacting a personal use charge for drivers is an effective way to recoup the value of a vehicle, it is not right for every fleet. For example, it doesn’t make sense for service fleets, where driving the vehicle is a necessary part of an employee’s job. This contingency shows that a personal use charge must be adapted to make sense for each unique fleet.

So, how do you figure out how much to charge? Any personal use charge is based largely on the personal mileage reports completed by your individual drivers, which the IRS already requires employees to log. As with many areas of fleet, there are several different methods to use to determine your personal use charge.

Use this white paper to help you understand the ins and outs of personal use, the taxation of it and how much you should consider charging your drivers.

About the Author

As Director of Taxation, John Shevlin prides himself on being able to provide tax information geared to every audience, depending on the level of understanding and interest. He has 27 years of accounting experience and has been leading all tax functions at LeasePlan USA for nearly 19 years.

In addition to his responsibilities at LeasePlan, John is an active member of the State Tax Committee, American Automotive Leasing Association (AALA), American Institute of CPAs (AICPA) and Georgia Society of CPAs.

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