Posts tagged ‘mileage rate’

Useful steps in calculating car benefit

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Categories: Calculator

Companies try to provide cars for their employees to be used for work-related activities and these are considered as car benefit. Most of these companies also allow their employees to keep their cars even on holidays and outside the work hours. Given this situation, it is expected that employees would use the cars for personal or non-work related trips. This set up however is subjected to taxes in accordance with the Federal Tax laws. In order to take a glimpse how it is taxed, this article provides a guide on how it is calculated based on the rules provided by the IRS which includes the cents-per-mile rule, commuting rule, and the annual lease value.

Cents-per-mile rule

  • Cents-per-mile rule is applicable only to cars that are driven in at least 10,000 miles per year. In this mileage requirement, 50% of this should be the distance used for personal use while the other 50% is devoted to work-related travels. This simply means that proper documentation is needed to separate the work-related and personal distances covered by the car per year.
  • Besides the annual mileage requirement, this rule is also limited to cars with values of about $15,000 and $15,200 for trucks or vans. This value requirement was based on the rules of 2009 as set by the IRS.
  • The amount that needs to be paid by an employee for the personal use of the car is calculated by multiplying the total miles used for personal trips with the mileage rate of the year set by the IRS. The mileage rate in 2010 according to IRS is $0.50 per mile which is the amount that covers the maintenance of the vehicle and its insurance. For example, an employee