You might think that now that all the payrolls have been paid for the year end, that you are done with the payroll and ready to produce the W-2’s and other year end payroll reports.

However, there is one step that you might have left out – the personal use of automobiles.

                                                

                                                           Photo courtesy of flickr.com

If someone has a car provided that is predominantly used for business, but still used personally, this personal use needs to get accounted for and either:

1. Reimbursed back to the company or,
2. Added to the W-2 as additional income.

Generally, the second option would be preferable.  The cost to the employee would then just be the taxes they would owe on this income.  Your cost would be the employer share of FICA/Medicare taxes.

However, if this is your own business and depending upon your corporate setup, you might be better off just reimbursing the company, since it all becomes income to you eventually, and save the payroll taxes on the gross up of income.

The IRS has a few different methods to calculate the automobile benefit.  Check with your tax advisor on what makes the most sense for you:

1. Cents per mile.  In my case, I found that this generated the lowest number.
2. Fair market value of lease.
3. Commuting cost.

As often the case, this can get more complex than you would think.  Your tax advisor can help you through it and figure out what makes the most sense for you.

Of course, by keeping good logs of your automobile use during the year, this becomes easier to figure out.  Auto use is a hard thing to recreate after the fact.

The key point is- make sure you do it before you making the final payroll tax payment and produce your year end payroll reports.