What Is a Standby Charge?

by Craig Anthony

1 min read

If you provide employees with an automobile, and they also drive it for personal use, you must report the employee benefit as a standby charge. As the employer, you receive a tax credit, but you must report the standby fee, along with the operating expense benefit, as income for the employee. When employees only drive the car for company business and return it to the organization’s motor pool every night, you do not report any standby fee or the operating expense benefit. Employees who drive the car home at night and use it for personal business are responsible for taxes on both sources of income. The amount of the standby fee is based on several variables, so the government provides a standby tax calculator. Depending on the value of the vehicle and how much the employee drives it, the company car could be more of an employee liability than a benefit. You want to encourage good recordkeeping from employees who use a car you supply. You must know the number of miles the employee drives the company car for personal use to calculate the standby fee. If employees reimburse the company for some of the operating expenses of the vehicle, it reduces their tax liability. While providing an employee with a company car is often beneficial, it can increase the paperwork you must complete. Allowing the employee access to the vehicle for personal use requires even more recordkeeping to meet government requirements. Because of an increase in tax liability, some employees may not see the automobile as beneficial.

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