Page 152 - Essentials of Payroll: Management and Accounting

Compensation
if they had paid for them directly. These rules will usually apply, since an
employer can claim a business benefit in the form of good morale of the
remaining employees, who can see that terminated employees are being
well taken care of. If these rules do not apply, then the employer must

withhold taxes on the fair market value of the services.
If the services are provided in exchange for severance pay, then the
employer must withhold taxes on them.This latter situation arises when
employees ask that the services be provided in an attempt to mask the
offsetting compensation, so they can avoid paying payroll taxes.

Personal Use of Company Vehicles

A number of taxation rules apply if an employee drives a company
vehicle for personal use. The basic rule is that personal use of this asset
is taxable income to the employee. The following rules apply:
• If the vehicle is a specialty one, such as a garbage truck, then
there is an assumption that no personal use will occur, so
using this type of vehicle will never result in taxable income
to the employee.
• If the employer requires the employee to use the vehicle to
commute to work, an enforced company policy prohibits the
vehicle from all other personal use, and the employee is not a
highly compensated employee, director, or officer, then the
employee will be charged $1.50 of taxable income for each
commute in each direction.
• If the employee can substantiate the amount of business use

to which the vehicle was put, including dates, miles, and the
purpose of each trip, all remaining miles are assumed to be for
personal use. In this scenario, it is possible to determine the
income charged to the employee by multiplying the IRS-
designated rate of 34.5¢ per mile (which is revised annually)
by the number of miles of personal use, less 5.5¢ per mile if
the employee pays for all fuel. This approach is only allowable

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