The use of a company car is tax free to the extent you use the car for business. If you use the car for personal driving, your company has the responsibility of calculating taxable income, which generally is based on IRS tables that specify the annual lease value of various priced cars. You are also required to keep for your employer a mileage log or similar record to substantiate your business use. Your employer should tell you what types of records are required.
Regardless of personal use, you are not subject to tax for a company vehicle that the IRS considers to be of limited personal value. Some example of these types of vehicles are: ambulances, flatbed trucks, dump trucks, garbage trucks, delivery trucks, tractors, and forklifts. Also not taxable is personal use of school buses, passenger buses with more than 20 seats, and moving vans where personal use is restricted. Exclusions are also allowed for commuting use of a clearly marked police, fire, or public safety officer vehicle by officers required to be on call at all times, and for officially authorized uses of unmarked vehicles by law enforcement officers.
The value of a demonstration car used by a full-time auto salesperson is tax free if the use of the car facilitates job performance and if there are substantial personal-use restrictions, including a restriction on use by family members and for vacation trips. Mileage outside of normal working hours must be limited and personal driving must be restricted to a 75-mile radius around the dealer’s sales office.
Social Security and Medicare taxes must be withheld for taxable company car benefits. No income tax withholding is required, but your employer may choose to withhold it. The taxable value of company car benefits is reported on Form W-2 in Box 14.