Is a car allowance taxable?
Allowances can be paid monthly, quarterly, or yearly, and the car allowance amount will typically depend on the amount you’re expected to drive, the type of car, and current gas prices. If your organization provides a car allowance, it may be unclear if the allowance is part of your taxable income or if the tax is the company’s responsibility.
How much does a vehicle allowance cost an employer?
While the employee loses out on receiving the full allowance amount, the employer also pays more. The average annual vehicle allowance costs employers about $7,441 per employee in the program when their portion of payroll tax is included. Due to the tax waste an allowance creates, employees only take home $4,729.
Is a sales rep's car allowance taxable income?
A sales rep might receive $575 as a monthly car allowance, for example, and the employer counts this as compensation for wear and tear on their personal vehicle. The employee need not necessarily spend $575 per month on his car, and would continue to receive that amount regardless. As a result, that allowance is taxable income.