Guidance permits change in vehicle use valuation during pandemic

By Sally P. Schreiber, J.D.

In response to the COVID-19 pandemic, the IRS is allowing employers to switch from the vehicle lease valuation method to the cents-per-mile method (57.5 cents for 2020, 56 cents for 2021) for determining the value of an employee’s personal use of a vehicle during the pandemic (Notice 2021-7). Because many businesses have either closed or switched to telecommuting, employers have noticed that using the Regs. Sec. 1.61-21(d) automobile lease valuation rule has resulted in an increase in the lease value required to be included in an employee’s income for personal use of a vehicle in 2020 compared with earlier years. In contrast, the cents-per-mile method produces a more accurate income inclusion.

Under normal rules of consistency in Regs. Sec. 1.61-21(d)(7), employers that used the automobile lease valuation rules are not permitted to change to the cents-per-mile rule. But, in response to the pandemic, the IRS is permitting employers that qualify to switch from the lease valuation rule to the cents-per-mile method in 2020 beginning on March 13, 2020, the date of President Donald Trump’s emergency disaster declaration, and continuing through 2020.

An employer qualifies to make the switch if, at the beginning of the 2020 calendar year, the employer reasonably expected that an automobile with a fair market value not exceeding $50,400 would be regularly used in the employer’s trade or business throughout the year, but due to the COVID-19 pandemic the automobile was not regularly used in the employer’s trade or business throughout the year. In 2021, the employer may continue using the cents-per-mile method or switch back to the lease valuation method.

In addition, employers that withheld higher employment taxes (income, Federal Insurance Contributions Act, and Federal Unemployment Tax Act taxes) using the lease valuation method that then switch to the cents-per-mile method may use the rules in Announcement 85-113 for reporting and withholding on taxable noncash fringe benefits, the Sec. 6413 adjustment process, or the Sec. 6402 refund claim process to correct any overpayment of federal employment taxes on these benefits.

Sally P. Schreiber, J.D., ( is a JofA senior editor.

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