Temporary Relief for Calculating Employee Personal Vehicle Use During the Pandemic

On January 4, 2021, the IRS published guidance that an employer using the automobile lease valuation (ALV) rule for the 2020 calendar year may instead use the vehicle cents-per-mile valuation rule beginning on March 13, 2020. (That’s the date the COVID-19 pandemic is considered to have commenced.) This only applies to vehicles with an expected fair market value of less than $50,400.

The intent of this temporary relief is to avoid penalizing drivers who were unable to use their vehicle for work purposes because of the pandemic. ARI is currently working on a way to perform this unique calculation.

Q: Does an employer have to select one method for all drivers?

A: Yes, with the exception of commute drivers.

Q: How should 11/1/19 to 3/12/20 be handled?

A: Employers should use a prorated ALV, i.e. 133 days/365 days.

Q: Is an employer responsible for following all the stipulations of the cents-per-mile rule?

A: Yes, vehicles with an expected fair market value of greater than $50,400 would not qualify for the cents-per-mile method.

Q: Once an employer selects the cents-per-mile method, can they revert to ALV in future years?

A: Consistency rules are being waived for 2020. An employer may go back to ALV / cents-per-mile in 2021, but whatever is elected for 2021 has to be used for each year thereafter (except to the extent the employer uses the commuting valuation rule).

Q: Will the IRS extend the W2 deadline as a result?

A: To our knowledge, the IRS has not indicated they will be extending the W2 deadline of January 31, 2021.

If you have further questions or need assistance with your filing, feel free to contact us.

For additional reading, refer to this Automotive Fleet article: IRS Addresses Unintended Personal Use Tax Consequence from COVID-19