When personal use of company car is added to employee W-2 is that part of wages?
Employee earns $100,000 in salary, and is provided a leased company car with lease payments totaling $10,000 per year. His personal use benefit is calculated at $5,000 and added to his W-2.
1) For financial reporting purposes, is his compensation $100,000 and Leased Vehicle costs $10,000?
The personal use amount of $5,000 would be a reconciling item between W-2 and 941’s
2) Or is financial reporting of compensation $105,000 and Leased Vehicle costs $5,000?
3) Once suggested entry is
dr Compensation $5,000
cr Miscellaneous Income $5,000
For the record, I believe 1) is the right answer.
#2 is the correct answer. You must report the value of the employee’s personal use of the vehicle as an additional salary expense on which you’ll withhold payroll taxes (Social Security, Medicare, and income taxes). This boosts salary expense from $100,000 to $105,000. The remaining $5,000 in lease payments ($10,000 – $5,000) can then be reported as a leased vehicle expense.
You are right in thinking the additional $5,000 will need to be added to the employee’s W2 and all payroll taxes paid on that amount should reflect on Form 941.