Personal use of a church vehicle for non-work-related purposes is a taxable perk known as a de minimis benefit. Personal use of a church vehicle includes:
- Your employee’s commute between home and work, if it’s on a regular basis.
- Trips unrelated to your organization’s purpose, work, trade, etc.
- Use on a vacation or on the weekend.
- Use by someone other than an employee of your church.
Infrequent personal usage of church vehicles is typically deducted from an employee’s salary.
The value of personal use of a church vehicle must be reported as income at least once a year. There are four options for how you report the use of a church vehicle:
General Valuation Method
The general valuation method is determined by the cost an individual would incur to lease the same vehicle under the same terms in the same geographic area.
Annual Lease Value Method
To use this method, multiply the annual lease value of the car (via the IRS Annual Lease Value table) by the percentage of personal miles driven. This will give you the Fair Market Value (FMV) of the employee’s personal use of a church-provided vehicle.
Cents-Per-Mile Method (Most Common)
Using this method, the FMV is determined by multiplying the IRS standard business mileage rate by the number of personal miles driven.
Commuting Value Method
The value is calculated by multiplying the number of trips by either $1.50 (one way) or $3 (round trip). However, there are several conditions that must be met in order to use this method:
- The vehicle is owned or leased by the organization and provided to the employee for use in conjunction with the church.
- You require your employee to commute to and/or from work.
- You have a written policy prohibiting your employee (and their family) from using the vehicle for personal use other than commuting to and from work.
Here are a few more helpful tips when you are determining which method to use to calculate the use of a personal vehicle:
- If you use the cents-per-mile or annual lease valuation method, you must use it for all subsequent years you provide a vehicle to an employee.
- The same special valuation method doesn’t have to be used for all church-provided vehicles or for all employees.
- If you have one church-provided vehicle that is used by multiple employees, you must use the same valuation method for all employees using that vehicle.
Personal use of a church vehicle is reported on Form W-2 in boxes 1, 3, 5, and 14 and on Form 941 on line 2, 5a, and 5c for non-clergy and box1 and 14 for clergy. You also need to watch if your state reports these wages in box 16.
The personal use of a church-owned automobile is considered part of an employee’s taxable income and proper documentation is vital. If you can’t determine business versus personal use, the value of the vehicle would be 100% taxable to the employee for both types of usage. It’s important to get this right so your employee’s taxes are correct to come year-end planning time.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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