Can Employees Use Company Vehicles for Personal Use?

As an employee, you can generally drive a company vehicle for personal use, which makes it a taxable benefit you must later report on your W-2 form.

If your company allows personal use of company vehicles, it can still be an attractive benefit and a huge convenience. Learn more about the tax rules and recordkeeping involved. 

What counts as personal use

If you use the company vehicle for any purpose that you cannot substantiate as being for business, it is considered personal use of the company vehicle and is taxable for you and your employer. 

Keep in mind what counts and doesn’t count as personal use.

Examples of personal use

• Commuting to and from your place of work
• Driving the car on weekends and after work
• Running errands during your lunch break
• Going on a road trip
• Allowing someone who’s not a company employee to drive the car

Examples of driving that DOESN’T count as personal

• Driving to client meetings
• Driving between multiple work locations 
• Transporting work equipment

Also read: Commuting vs Business Miles 

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Using a company vehicle for personal use is considered a taxable benefit

If an employer allows you to use a company car for personal use, it’s considered a taxable benefit in the eyes of the IRS.

That means any personal mileage will be taxed as part of your income, as your employer will withhold federal income taxes, Medicare taxes, and Social Security taxes from your paycheck based on the value of your personal use of the company vehicle.

Here’s a ballpark example to illustrate what that could mean for your finances:

If your company car's annual lease value is $6,000 and you use it 50% of the time for personal reasons, you may have $3,000 added to your taxable income, increasing your tax bill by around $600–$1,000 depending on your tax bracket.

Should you pay your employer back for the personal use of company vehicles?

You could arrange with your employer to pay the company for your personal use of a company vehicle. 

But, it’s more common for employees to record their personal and business use. Then, the employer will withhold taxes from your pay based on the value of the company vehicle's personal use.

That means that in order to receive non-taxable mileage reimbursement from your employer for your business driving, you must separate personal and business mileage.

How to keep track of your business vs personal mileage

If you don’t keep track of when you use the company vehicle for personal use and business, it’ll all be considered personal use.

Therefore, it’s vital that you record all the miles you drive with the company vehicle in a mileage log so you can prove how it’s being used for both personal and business purposes.

Every log should include:

• The date
• The purpose of the trip
• The start and end locations

You'll find more information on mileage log requirements in our other guide.

Categorize your trips with a mileage tracking app

The easiest way to track your mileage is to use an app, such as the Driversnote mileage tracker, which automatically records your mileage. Driversnote also makes it easy to manage and categorize trips as business or personal and even add notes for more detail.

If you prefer manual mileage logging, a free IRS mileage log template might come in handy.

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