OK, here’s the situation - assume that a person buys a car via the GM Employee Discount, which apparently yields a taxable benefit. The person’s company used to calculate up an effective “income” from this, and give a statement at the end of the year. This year, the company says “tough shit, we’re not giving you anything.” Calls to H&R Block revealed that NO ONE there knew anything about this - in fact, the person on the phone said they did not even think it was taxable. So an actual tax accountant was retained, who says “your company is supposed to calculate this for you; if they don’t then you’re out of luck.” I’ve reviewed the IRS information on this, and it’s somewhat hard to comprehend. I called the IRS, and they said “your tax advisor needs to handle this; we are not allowed to give you help in this area.”
Surely, with so many people each year getting GM Employee discounts on cars, this should be SOP, right? Is there any simple rule, or guidance, oh tax experts on here, to handle this situation?
Just a really WAG. I assume the “taxable” part is the amount of money you would have paid on the open market minus the amount you actually paid. So you could go to a buying service like Costco, your credit union, AAA, etc. Get an estimate from them for the car you bought and use that as the “open market” value.
I don’t have an answer but I find it very hard to believe that is taxable. Vehicles don’t have a set price anyway. There is nothing to compare it to. Somewhere in the U.S. someone walked into a regular dealership and paid around the same price. Employees in different industries get discounts on all kinds of things from hotel rooms to meals. You can get discounts all over the place with a AAA membership for example. Like I said, I have no answer but that scenario sounds bizarre to me.
The biggest problem is, given the high cost of the car (above $50k) small differences in the estimated value are going to yield large amounts of money. And I don’t know which one to take - the IRS is unclear on this, and the more I read the regs the more unclear it is that there is any taxable amount. The company does not consider it a “fringe benefit” since they wash their hands of it. And what about the case where GM was saying “everyone gets the Employee Discount!” a while back - did all those hundreds of thousands of folks suddenly have to fill out a new tax form?
And people wonder why folks cheat on taxes. I’m trying to do the right thing and even the IRS can’t tell me what I’m supposed to do.
But it’s confusingly worded nonetheless - it seems to be entirely written from the standpoint of a burden that the employer is supposed to calculate. And I love this part.
“Determine the amount on the basis of all facts…” but ignore what the employee or the employer considers the cost to be, including the actual cost to the employer? Isn’t that a “fact”?
In fact, the more I read that the more it seems that it is mandatory that the company provide an estimate of the value if in fact it is a benefit.
My Bro the Tax expert sez this is a very grey area and if they don;t report it on a W-2, then it’s likely not taxable. But inform your *Enrolled *Tax expert (CPA or EA) all the same.
For over 20 years there has been a see-saw battle about taxing discounts-as-fringe-bennies like this.
In the airline biz where I was, the argument was about the “true” value of the nearly-free travel we got. When every paying customer on the plane paid a different price for their ticket, and we were sitting in seats that would have gone empty but for us, what (supposedly taxable) discount did we really receive?
Ultimately, the laws & regs are vague. So we’re left with practical, what-really-happens-in-the-field as the only guide to what to do next.
My understanding is the practical situation today is that some IRS courts have determined that some bennies are sometimes taxable. Others not. They threw up their hands in confusion in the airline case, so those bennies aren’t taxable.
Discounted cars? Darn good question. And I can certainly understand the company’s (craven) desire to get out of the middle & dump the mess in your lap; they’re under no regulatory obligation to value your gain (assuming there IS in fact a taxable gain)
My practical advice: Ignore the problem. If the gain isn’t reported on your W-2 that’s good enough for the common man/woman.
Sure, IF you get auditted, and IF it comes out that you got a cheap car (and how would they find out if it wasn’t reported on W-2 or 1099?), THEN you’d be liable for the tax on the discount. Even with interest & penalties, that’s still less than the value of the discount itself.
