Employee Fringe Benefits – Commuting Rule

rlewis on November 4, 2014

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Katie Myers, CPA, MST
Lead Accountant

Each year, employers must determine the value of fringe benefits that they provide to their employees.  One common fringe benefit item provided to employees is the personal use of a company car.  Generally, the employer must include in an employee’s wages, the value of the personal use of a company car.

One often overlooked method that can be used to compute an employee’s personal use of a company car is the Commuting Rule.

Under the Commuting Rule, the value of the personal use of a company car is computed by multiplying each one-way commute (from work to home or home to work) by $1.50.  The requirements to use this rule are as follows:

  • The vehicle must be provided to an employee for use in the trade or business and for bona fide business reasons, you require the employee to commute in the vehicle
  • A written policy is established which states that the employee is not allowed to use the vehicle for personal purposes other than commuting or de minimis personal use
  • The employee does not use the vehicle for personal purposes other than commuting and de minimis personal use
  • The employee using the vehicle is not a controlled employee
    • A controlled employee includes:
      • A board or shareholder appointed or elected officer who’s pay is $105,000 or more,
      • A director,
      • An employee who’s pay is $210,000 or more,
      • An employee who owns 1% or more equity, capital, or profits interest in the business.
    • A controlled employee can also be defined as any highly compensated employee. They must meet either of the following tests:
      • The employee was a 5% owner at any time during the year or preceding year.
      • The employee received more than $115,000 in pay for the preceding year – This test can be ignored if the employee was not also in the top 20% of employees when ranked by compensation for the preceding year.

When looking at year end planning, and computing fringe benefits for clients, be sure to evaluate the Commuting Rule to see if it would be beneficial to use this method over the other methods such as the Cents-per-Mile Rule or the Lease Value Rule.