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Adding Personal Use of Company Car to Wages

Background

Many companies today purchase or lease automobiles that are used by employees in the course of doing business. However, in many cases employees are allowed by employers to use these vehicles for personal use. In most cases, this personal use is a taxable fringe benefit, and employers are responsible for withholding taxes on this benefit. Personal use of a company car (PUCC) is a non-cash fringe benefit, so its value must be determined at least once a year.

You will need to calculate the amount of the PUCC outside of the software and enter the amount as one lump sum in the software as a taxable money type. Employers should follow the guidelines provided in Internal Revenue Service Publication 15-B, Employer’s Tax Guide to Fringe Benefits, or contact their accountant for assistance in the calculation.

Adding PUCC to the software to show fringe benefits on W-2

Here is a summary of the steps you will need to take:

  1. Add a taxable money type
  2. Add a corresponding company deduction
  3. Run a sample payroll to determine the employee’s deduction amount so their net pay will be zero.
  4. Assign the deduction to the employee
  5. Run an actual payroll using the money type and deduction to increase the employee’s wages reported on their W-2.
  6. Inactivate the employee’s deduction

Here are the detailed steps:

1. Add a Taxable Money Type

  • Go to Settings > Payroll Settings > Hours & Money Types > Money Types > Add New.
  • Call the name something like “PUCC.”
  • Keep the “Include as Taxable Income” box checked.
  • For the W-2 Box, select “Box 14 – Other” and enter “PUCC” for the W-2 Label.
  • Keep all other boxes blank.
  • Click Save.

2. Add a corresponding Company Deduction

  • You will be adding a deduction, so the employee’s net pay does not get increased from the fringe benefit, and will only increase their wages reported on their W-2.
  • Go to Settings > Payroll Settings > Deductions & Contributions > Deductions > Add New.
  • For the Type, select “Post-Tax.”
  • For the Description, enter “PUCC Offset” or something similar to what you named the money type.
  • For the Method, choose “Fixed Dollar.”
  • For the Amount, leave this blank.  You will fill in the dollar amount when you assign to the employee.
  • For the Limits, leave blank.
  • For the W-2 Box, leave blank.
  • Click Save.

3. Run a sample payroll

The end goal is to run a payroll showing PUCC earnings, plus a deduction to get a net zero payroll, so the employee is not actually paid any money.  In order to determine how much to deduct from the employee, you will need to run a sample payroll that you will stop on Step 2 and cancel, so that it won’t actually be processed.  You’ll just need to get the numbers from the paycheck calculation.

  • Payroll > Run a New Payroll
  • Under “Show Advanced Options,” if you have other deductions and contributions you normally use, choose to skip all of the deductions and contributions.  If you use direct deposit, turn off the direct deposit here.
  • Click the toggle to “Show all Pay Types.”  The new PUCC money type you added will appear.
  • For the employee you want to pay, enter the amount of the PUCC in that money type.  Don’t add any other hours or money.
  • Continue to Pay Step 2.
  • Click “View Details” at the top of the page.
  • Find the employee, and note the net pay amount in the bottom right corner of the details.  The Net Pay amount should be smaller than the original PUCC earnings, due to the employee’s tax withholdings.  Make note of this net pay amount, as this will be the amount of the employee’s offset deduction.
  • Click “Cancel Payroll” at the bottom of Pay Step 2 and “Yes” to confirm.  You are now ready to assign the offset deduction to the employee, and then run the actual payroll

4. Assign the deduction to the employee

  • Go to Payroll > Employee List > Select the employee name > Deductions & Contributions > Deductions > Add New.
  • Select the PUCC Offset deduction.
  • Enter the amount of the deduction, which is the net pay amount you noted in the sample payroll.
  • Leave the limits blank, and click Save.
  • This deduction is now ready to be used in a payroll

5. Run an actual payroll

Now you are ready to run the actual payroll that will show the PUCC earnings, plus the offset deduction so the employee isn’t paid this money.  While you can pay the PUCC with their regular payroll, we recommend running a separate payroll just for the PUCC.

  • Go to Payroll > Run a New Payroll.
  • Under “Show Advanced Options,” if you have other deductions and contributions you normally use, choose to skip all of the deductions and contributions.  If you use direct deposit, turn off the direct deposit here.
  • Be sure the pay date falls in the correct year, in order to properly show on the W-2.
  • Click the toggle to “Show all Pay Types.”  The new PUCC money type you added will appear.
  • For the employee you want to pay, enter the amount of the PUCC in that money type.  Don’t add any other hours or money.
  • Continue to Pay Step 2 and click “View Details.” Confirm that the employee’s net pay is $0.00.
  • Click “Approve Payroll” to finish.

The PUCC earnings will be included in Box 1, 3, and 5 of the employee’s W-2.  You can confirm this by going to Reports > W-2 & W-3 Summary > Find the employee’s name and view the amounts shown.

6. Inactivate the employee’s deduction

Because you don’t want this PUCC offset deduction to keep coming out in future payrolls, you will want to inactivate this deduction after you have run the payroll.

  • Go to Go to Payroll > Employee List > Select the employee name
  • In their Deductions & Contributions tab, click the “Edit” icon for the PUCC offset deduction.
  • Uncheck the “Active” box and click “Save.”

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