An employee will not receive a
An employee will not receive a company car, but will be providedwith an interest free loan from the company to purchase a personalone. He receive an allowance of $0.51 per kilometre for employmentdriving. What are the tax implications of this note, if any?
Answer:
Any interest free loan received by employee from employer istaxed using imputed interest rate. Imputed interest rate comes intoplay when the interest rate at which the lendor lends money toborrower at the rate less than Applicable Federal Rate (AFR). TheAFR will be taken as Imputed interest rate in such case anddifference between actual interest rate and imputed interest rateis taken as income for the borrower.
But that has a exception when the loan amount is less than$10,000 and employer can prove the purpose of such loan is not toavoid tax.
If in the given case, the loan amount is less than $10,000 itwill be exempted in the hands of employee. Otherwise the loan willbe taxed using Applicable Federal Rate in the hands ofemployee.
The car allowance of 51 cents per kilometre i.e., 82.126 centsper mile. As per IRS, the standard mileage rate is 57.5 cents permile. In the given case it is not reimbursement but car allowance.So the standard mileage rate is of no use. Also Accountable plan isnot applicable, non accountable plan is applicable. Under this nonaccountable plan, the car allowance is treated as income and tax isto be withholded from the payments made to employees byemployer.
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