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Autos not Taxed at Full Economic Value

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

As readers of the Medical Executive-Post are aware, there are three categories of benefits that clinics and hospital employers typically provide to their employees, nurses, hospitalists, etc:

1. Those that are totally income tax-free; some are still taxable for FICA (Social Security and Medicare).
2. Those that are not taxed at their full economic value; or are taxed at a special preferential rate.
3. Those in which a tax liability is not incurred until after benefits received.

Taxable Benefits

When a benefit does not qualify for exclusion under a specific statute or regulation, the benefit is considered taxable to the recipient.  It is included in wages for withholding and employment-tax purposes, at the excess of its fair market value over any amount paid by the employee for the benefit.

For example, hospitals often provide automobiles for use by hospitalists, and employees, etc. Treasury regulations exclude from income the value of the following types of vehicles’ use by an employee:

• Vehicles not available for the personal use of an employee by reason of a written policy statement of the employer
• Vehicles not available to an employee for personal use other than commuting (although in this case commuting is includable)
• Vehicles used in connection with the business of farming [in which case the exclusion is equal to the value of an arbitrary 75% of the total availability for use, and the value of the balance may be includable or excludable, depending upon the facts (Treas. Regs. § 1.132-5(g)) involved)]
• Certain vehicles identified in the regulations as “qualified non-personal-use vehicles,” which by reason of their design do not lend themselves to more than a de minimus amount of personal use by an employee [examples are ambulances and hearses]
• Vehicles provided for qualified automobile demonstration use
• Vehicles provided for product testing and evaluation by an employee outside the employer’s work place.

Assessment

If the hospital employer-provided vehicle does not fall into one of the excluded categories, then the employee is required to report his personal use as a taxable benefit. The value of the availability for personal use may be determined under one of several approaches. Under any of the approaches, the after-tax cost to the employee is substantially less than if the hospital employee used his or her own dollars deducted a portion of the cost as a business expense.

Conclusion

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Filed under: Retirement and Benefits |