Tax Reform Update: Employee business expenses can be claimed only by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses.
Form W-2 Wage and Tax Statement, Box 14, can be used by the employer to give other information to an employee. If you have an amount in Box 14 of your W-2 relating to a company car that you use, you would need to verify with your employer exactly what that amount represents.
If the amount represents your personal use of a company car (and only the personal use) calculated by the employer, then that amount may already be reflected in Box 1 of the W-2 as taxable income. If this is the case, there is nothing else you would need to do with that amount on your return.
If the amount represents the entire annual lease value of the car, and that amount is included in Box 1 of your W-2 as taxable income, then you need to complete Form 2106 Employee Business Expenses to claim the deductible business expense for the car as an itemized deduction. You may also be able to deduct any actual costs (that your employer did not provide or reimburse you for) which you paid to operate the car for business purposes. Examples of costs that you may have are gas, oil, and repairs.
To enter information for Form 2106:
Below are specific notes for completing some of the screens titled Employee Expenses - Vehicle Expense you will encounter (the bold text will appear at the end of each screen title, such as Employee Expenses - Vehicle Expense - Miles Driven).
If you lease the vehicle:
If you own the vehicle:
The expense is calculated on Form 2106, which you can view if you print your return.
Per IRS Publication 463 Travel, Gift, and Car Expenses, on page 28:
Vehicle Provided by Your Employer
If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes. The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year. You can’t use the standard mileage rate.
CAUTION! Form 2106 is only used by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.
Value reported on Form W-2. Your employer can figure and report either the actual value of your personal use of the car or the value of the car as if you used it only for personal purposes (100% income inclusion). Your employer must separately state the amount if 100% of the annual lease value was included in your income. If you are unsure of the amount included on your Form W-2, ask your employer.
Full value included in your income. You may be able to deduct the value of the business use of an employer-provided car if your employer reported 100% of the value of the car in your income. On your 2020 Form W-2, the amount of the value will be included in box 1, Wages, tips, other compensation; and box 14.
To claim your expenses, complete Form 2106, Part II, Sections A and C. Enter your actual expenses on line 23 of Section C and include the entire value of the employer-provided car on line 25. Complete the rest of the form.
CAUTION! Form 2106 is only used by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.
Less than full value included in your income. If less than the full annual lease value of the car was included on your Form W-2, this means that your Form W-2 only includes the value of your personal use of the car. Don’t enter this value on your Form 2106 because it isn’t deductible.
If you paid any actual costs (that your employer didn’t provide or reimburse you for) to operate the car, you can deduct the business portion of those costs. Examples of costs that you may have are gas, oil, and repairs. Complete Form 2106, Part II, Sections A and C. Enter your actual costs on line 23 of Section C and leave line 25 blank. Complete the rest of the form.
CAUTION! Form 2106 is only used by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.
Per IRS Publication 15-B Employer's Tax Guide to Fringe Benefits, starting on page 22:
Working Condition Benefits
This exclusion applies to property and services you provide to an employee so that the employee can perform his or her job. It applies to the extent the cost of the property or services would be allowable as a business expense or depreciation expense deduction to the employee if he or she had paid for it. The employee must meet any substantiation requirements that apply to the deduction. Examples of working condition benefits include an employee's use of a company car for business, an employer-provided cell phone provided primarily for noncompensatory business purposes (discussed earlier), and job-related education provided to an employee.
Vehicle allocation rules. If you provide a car for an employee's use, the amount you can exclude as a working condition benefit is the amount that would be allowable as a deductible business expense if the employee paid for its use. If the employee uses the car for both business and personal use, the value of the working condition benefit is the part determined to be for business use of the vehicle. See Business use of your car under Personal Versus Business Expenses in chapter 1 of Pub. 535. Also, see the special rules for certain demonstrator cars and qualified nonpersonal use vehicles discussed later.
Demonstrator cars. Generally, all of the use of a demonstrator car by your full-time auto salesperson in the sales area in which your sales office is located qualifies as a working condition benefit if the use is primarily to facilitate the services the salesperson provides for you and there are substantial restrictions on personal use. For more information and the definition of “full-time auto salesperson,” see Regulations section 1.132-5(o). For optional, simplified methods used to determine if full, partial, or no exclusion of income to the employee for personal use of a demonstrator car applies, see Revenue Procedure 2001-56. You can find Revenue Procedure 2001-56 on page 590 of Internal Revenue Bulletin 2001-51 at IRS.gov/pub/irs-irbs/irb01-51.pdf.
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.