The Pros & Cons of a Company Car

For many workers in the U.S., owning and operating a vehicle is a part of everyday life. In some cases, vehicles are essential for performing tasks related to a job. Some employers provide workers with company vehicles as a job benefit, often to allow them to perform duties related to the job. There are several notable advantages -- as well as disadvantages -- to having a company car.

Company Cars are Taxable Fringe Benefits

Fringe benefits include various types of non-cash compensation employers provide their employees. Since the Internal Revenue Service (IRS) considers fringe benefits a form of payment for services, the value of fringe benefits are considered taxable income. The time you spend using a company car for non-business purposes, such as commuting to and from work, running personal errands and leisure, is considered a fringe benefit. Commuting to a job is considered a personal use of a vehicle by the IRS for tax purposes; traveling from your home to the workplace is not a part of your actual job duties. According to TurboTax, however, if you are self-employed and your home is your principle place of business, the cost of driving to a secondary workplace or visiting clients is a business expense. The IRS states that employers are required to include fringe benefits in employee pay. Since employers withhold taxes on behalf of employees based on their total compensation, using a company car can result in higher tax liability and less take-home pay.

Cost of Vehicle Ownership

One advantage of having a company car is that the total cost of using the vehicle is likely to be less than if you paid for your own vehicle. According to the IRS, the value of the benefit is based on it's "fair market value"; the IRS allows employers to use a standard mileage rate that amounts to 51 cents per mile in 2011 to calculate the fair market value of company cars. The employee's cost of using a company car is the tax on the benefit, rather than its full value.

Car Selection

A potential drawback of using a company car is that you may have limited options as to what type of car you drive, its color and the upgrades that come with it. Employers may provide vehicles well suited for work activities, such as trucks or vans, which are not desirable for private activities such as commuting and leisure.

Car Buying and Selling

A potential advantage to using a company car is you can avoid the necessity of buying, selling or leasing a vehicle. This can be a time consuming process that requires a considerable amount of research. If you have access to a company car, it can save you time and money.