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Proper Tax Reporting for Labor Unions

January 16, 2017 
By Salvatore J. Armao, CPA/PFS, CFP, CFE, CGMA

As tax time approaches, it becomes imperative that labor unions become aware of ways in which they may be missing the boat on proper tax reporting. To aid in their efforts, this will be the first in a series of articles on common areas of error. This article will focus on IRS and NYS emphasis on labor union audits regarding employer provided vehicles.

How To Account for the Use of Vehicles
When vehicles are provided to Union Officials by their employers whether it is the Union Local, District Council or International Union with no restrictions on the use of the vehicle, it is assumed that the vehicle will be driven for both Union business during work days and personally on the weekends and outside of work hours.

The personal use portion of the vehicle is considered a fringe benefit for the employee as a form of non-cash compensation and therefore must be reported on the employee’s W-2 in Box 1 and is subject to Social Security Tax, Medicare Tax and Federal Unemployment Tax.

The personal use value portion of expenses in connection with an employer provided vehicle which are paid directly by the employer, (such as lease payments, gasoline, insurance and repairs and maintenance expenses) are also subject to taxation and must be reported on the employees W-2 as taxable compensation.

To compute the amount of income to be included in the employee’s W-2:

a) Determine the fair market value of the automobile as of the first date on which the vehicle is made available to the employee for personal use.

b) Refer to the IRS Annual Lease Value Table (Exhibit 1) and select the dollar value range into which the fair market value of the vehicle falls in column 1.  The annual lease value is the corresponding amount in column 2.

c) Multiply the amount of the personal use value by the percentage of personal use and include the result in the employee’s W-2 income. Note that this amount must be reported as wages subject to Social Security and Medicare and Federal Unemployment Insurance on the employer’s 4th quarter payroll tax returns forms 941 and 940.

The annual lease value table includes the value of maintenance and insurance for the vehicle.  The tables do not include the value of fuel provided by the employer.  Consequently, the cost of fuel directly paid or reimbursed by the employer must be valued separately for inclusion in the employee’s W-2 income.

d) Example – Beginning January 1, 2016, Joe Business Manager uses a car provided by his Union Local 80% of the time for business and 20% of the time for personal use for a year.  The car has a fair market value of $50,000 as of January 1, 2016.  Under the ALV table the car’s ALV is $13,250.  Thus 20% of the $13,250 or $2,650 would be includible in Joe’s W-2 income for 2016.

e3-1.AnnualLeaseValueTable

(1)AutomobileFMV                                                 (2)AnnualLease

$0to999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                     $    600

1,000to1,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                             850

2,000to2,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                         1,100

3,000to3,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                         1,350

4,000to4,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                         1,600

5,000to5,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                         1,850

6,000to6,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                         2,100

7,000to7,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                         2,350

8,000to8,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                         2,600

9,000to9,999  . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                         2,850

10,000to10,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            3,100

11,000to11,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            3,350

12,000to12,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            3,600

13,000to13,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            3,850

14,000to14,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            4,100

15,000to15,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            4,350

16,000to16,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            4,600

17,000to17,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            4,850

18,000to18,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            5,100

19,000to19,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            5,350

20,000to20,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            5,600

21,000to21,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            5,850

22,000to22,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            6,100

23,000to23,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            6,350

24,000to24,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                            6,600

25,000to25,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                  6,850

26,000to27,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                  7,250

28,000to29,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                  7,750

30,000to31,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                  8,250

32,000to33,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                  8,750

34,000to35,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                  9,250

36,000to37,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                  9,750

38,000to39,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                10,250

40,000to41,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                10,750

42,000to43,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                11,250

44,000to45,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                11,750

46,000to47,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                12,250

48,000to49,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                12,750

50,000to51,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                13,250

52,000to53,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                13,750

54,000to55,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                14,250

56,000to57,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                14,750

58,000to59,999. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                15,250

For  automobileswithan  FMVofmore  than  $59,999, theannual  leasevalue  equals(0.25  ×theFMV oftheau- tomobile)+$500.

FMV.  TheFMVofanautomobileistheamount aperson wouldpay  tobuyitfromathirdparty  inan  arm's-length transactioninthe  area  inwhichthe  automobileisbought orleased.That amount includesallpurchaseexpenses, such  assalestaxandtitlefees.

If youhave 20 ormoreautomobiles,seeRegulations section1.61-21(d)(5)(v).Ifyouand the employeeownor leasethe  automobiletogether,see  Regulationssection

1.61-21(d)(2)(ii).

Youdon't have toinclude the  value  ofatelephoneor anyspecializedequipmentaddedto,orcarried  in,theau- tomobileiftheequipmentisnecessaryforyourbusiness. However, includethevalueof specializedequipmentifthe employeetowhom  the  automobileisavailable  usesthe specializedequipmentina  trade  orbusinessother  than yours.

Neither  the  amount  the  employeeconsiderstobe  the valueofthebenefitnoryourcost  foreitherbuyingorleas- ing  the  automobiledetermines  its  FMV.However,   see Safe-harborvaluenext.

Safe-harbor value.    You may   be   able   to use   a safe-harborvalueastheFMV.

For  an  automobile  you  bought   at  arm's   length,   the safe-harborvalue  isyour  cost,  including  salestax,  title, and  otherpurchaseexpenses.Thismethodisn’tavailable foranautomobileyoumanufactured.

Foran automobileyoulease,youcan use  any  ofthe followingasthesafe-harborvalue.

  • Themanufacturer'sinvoiceprice(includingoptions) plus4%.
  • Themanufacturer'ssuggestedretailpriceminus8% (includingsalestax,title,andotherexpensesofpur- chase).
  • Theretailvalueoftheautomobilereportedbyana- tionallyrecognizedpricingsourceifthatretailvalueis reasonablefortheautomobile.

Items  includedinannual  leasevalue  table.    Each  an- nualleasevalueinthetable  includesthevalueofmainte- nanceand  insurancefortheautomobile.Don'treducethe annual  leasevalue  bythe  value  ofany  oftheseservices thatyoudidn'tprovide.  Forexample,don'treducethean- nual leasevalue bythe value  ofa  maintenanceservice contractorinsuranceyoudidn'tprovide.Youcantakeinto accounttheservicesactually provided  fortheautomobile byusingthegeneralvaluationrulediscussedearlier.

Itemsnot included.   The  annual  leasevalue  doesn't include  the  value  offuelyouprovide  toan  employeefor personaluse,  regardlessofwhether  youprovide  it,reim- burseitscost,  orhave  itchargedtoyou.Youmustinclude thevalue ofthefuelseparatelyintheemployee'swages. Youcan value fuelyouprovided atFMVorat5.5  cents per  mileforallmiles  driven  bythe  employee.However, youcan't  value  at5.5centsper  milefuelyouprovide  for miles  driven  outsidethe  United  States(including  itspos- sessionsandterritories),  Canada,andMexico.

If  you  reimbursean  employeeforthe  cost  offuel,or have  itchargedtoyou,yougenerally  valuethefuelatthe amount  youreimburse,ortheamount  chargedtoyouifit wasbought  atarm'slength.

If youhave 20 ormore automobiles,seeRegulations section1.61-21(d)(3)(ii)(D).

Ifyouprovide anyserviceother than maintenanceand insuranceforan automobile,youmust add  the  FMVof thatservice totheannual  leasevalueoftheautomobileto figurethevalueofthebenefit.

4-year leaseterm.   Theannual leasevaluesinthetable are  basedona4-year  leaseterm.Thesevalueswillgen- erallystaythesamefortheperiodthatbeginswiththefirst date  youuse  thisrulefortheautomobileand  endsonDe- cember31  ofthe  fourthfullcalendaryear  followingthat date.

                                                                                                                                          Publication15-B(2017)

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