How To Report The Personal Use Of A Company Auto Or Car On The W-2

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.

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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 gross up 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!

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