The IRS has provided relief from the consistency rules to certain employers and employees that use the automobile lease valuation rule to determine the value of an employee’s personal use of an employer provided automobile as a result of the COVID-19 pandemic. Many employers suspended operations and changed their employees work arrangements to telework, thus the personal use of automobiles has declined. The cents-per-mile valuation rule can more accurately reflect income for the usage of the vehicle.
Employers that meet certain requirements are allowed to switch to the vehicle cents-per-mile method for the period beginning on March 13, 2020 without violating the consistency requirement. Additionally, the guidance provides a process to calculate the 2020 income inclusion and the methods available going forward into 2021.
Background. If an employer provides an employee with an automobile available for personal use, the value of the personal use must be included in the employee’s gross income. Under the general rule, an employer who provides an employee a vehicle must adopt one of the following methods to determine the value of an employee’s personal use of the vehicle: (1) the automobile lease valuation rule, (2) the vehicle cents-per-mile valuation rule, or (3) the commuting valuation rule. The employer and the employee must use the chosen valuation method consistently.
Relief for calendar year 2020. An employer using the automobile lease valuation rule for the 2020 calendar year has the opportunity to switch to use the vehicle cents-per-mile valuation rule beginning on March 13, 2020, if:
· at the beginning of 2020, the employer reasonably expected that an automobile with a fair market value not exceeding $50,400 would be regularly used in the employer’s trade or business throughout the year; and
· due to the COVID-19 pandemic the automobile was not regularly used in the employer’s trade or business throughout the year.
Additionally, employers that choose to switch from the automobile lease valuation rule to the vehicle cents-per-mile valuation rule in the 2020 calendar year must prorate the value of the vehicle using the automobile lease valuation rule for January 1, 2020, through March 12, 2020. As of March 13, 2020, employers may begin to use the cents-per-mile valuation rule.
Methods for personal use of automobiles for calendar year 2021. For the 2021 year, employers that switch from the automobile lease valuation rule to the cents-per-mile valuation rule for the 2020 year can either revert back to the automobile lease valuation rule or continue to use the cents-per-mile valuation rule in 2021.
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Please contact the Crosslin tax team to discuss the impact of this relief guidance on the personal use of employer provided vehicles and the opportunity to change methods from the automobile lease valuation rule to the cents-per-mile valuation rule. We are here to help!
