The IRS has issued Notice 2021-07
to allow employers and employees using the automobile lease valuation rule to instead use the vehicle cents-per-mile valuation rule to determine the value of an employee’s personal use of an employer-provided vehicle for purposes of income inclusion, employment tax and reporting.
The temporary relief comes in response to circumstances caused by COVID-19, including unexpected reductions in the business and personal use of employer-provided vehicles, which can result in increases in the lease value required to be included in an employee’s income for 2020 compared to prior years. Use of the vehicle cents-per-mile valuation rule results in income inclusion of only the value that relates to actual personal use, which generally provides a more accurate reflection of the employee’s income in these circumstances.
The relief applies to the use of an employer-provided automobile beginning March 13, 2020, and generally is available only with respect to vehicles with a fair market value that does not exceed $50,400. Employers that choose to use the vehicle cents-per-mile valuation rule must pro-rate the value of the vehicle using the automobile lease valuation rule for Jan. 1 through March 12, 2020, using the formula provided in the notice. For 2021, the IRS is allowing employers and employees the option to either revert back to the automobile lease valuation rule or continue using the vehicle cents-per-mile valuation rule provided certain requirements are met.
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