Car allowance not on W2 + company credit card for gas - drive 48,000 miles for work - how to report on taxes?

Wait, so they still have to pay taxes on the $650 monthly allowance even though the money is being used for their car that's required for work? That seems unfair. What if the $650 doesn't even cover the depreciation of their vehicle from driving 48,000 miles a year? And are you sure employees can't deduct mileage anymore at all? I thought there might still be exceptions.

Yes, the $650 monthly allowance is considered taxable income if it's not included on the W-2. The tax law distinguishes between accountable and non-accountable plans. What this person has is likely a non-accountable plan for the car allowance (hence why it's separate and untaxed), so it must be reported as income. You're right that it might not fully cover vehicle depreciation at 48,000 miles per year, which is significant wear and tear. Unfortunately, the Tax Cuts and Jobs Act suspended the deduction for unreimbursed employee business expenses through 2025. There are very limited exceptions, mainly for certain categories like armed forces reservists, qualified performing artists, fee-basis state or local government officials, and eligible educators. Most regular employees don't qualify for these exceptions.

How long did it take to get an answer from them? I'm already working on my taxes now and need an answer pretty quickly. Also, did they help you figure out if your company car allowance was considered an accountable or non-accountable plan? My situation is almost identical to the original poster.

I'm skeptical about these tax tools. How do you know their information is actually correct? I've used tax software before that gave me wrong information. Plus, don't you have to pay for this service? Is there any way to just get this information for free from the IRS directly?

The answers were immediate - it's an AI system that analyzes your documents right away. I had my complete analysis in less than 5 minutes after uploading my documents, so it should work with your timeline if you're doing taxes now. Yes, they specifically analyzed whether my allowance was an accountable or non-accountable plan. They explained that since I wasn't required to track and report my specific car expenses related to the allowance (unlike the credit card expenses which I did report), my allowance was non-accountable and therefore taxable income. The way they break down the tax code is really clear.

How does Claimyr actually work? I don't understand how they can get you through to the IRS when I've been trying to call for months. Are they just constantly auto-dialing or something? I'm worried this is just a scam.

Sounds fake. I've tried everything to get through to the IRS and nothing works. They put you on hold for hours then disconnect you. I seriously doubt any service can magically get you through. And even if you do get through, you'll probably get different answers from different agents because they're all confused about their own rules.

It uses an automated system that navigates the IRS phone tree and holds your place in line. When an agent finally answers, you get a call connecting you directly to them. It's basically doing all the waiting for you so you don't have to stay on hold for hours. The system is completely legitimate. The service doesn't "cut the line" - it just automates the frustrating process of waiting on hold. I was skeptical too, but they really did connect me to an actual IRS agent who answered all my questions about car allowances and provided official guidance I could rely on.

That's a really good point. I'll definitely check with our HR department to see if this is something they should be reporting on my W-2. Do you happen to know what section of the tax code I could reference when I talk to them? I'd like to be prepared in case they push back.

IRS Publication 15-B (Employer's Tax Guide to Fringe Benefits) covers this topic. Specifically, the sections on "Working Condition Benefits" and "Accountable Plans vs. Nonaccountable Plans" would be most relevant. You could also reference IRC Section 62(c) which defines accountable plans. Basically, if your allowance doesn't require you to substantiate your actual car expenses related to the allowance amount (separate from the credit card expenses), it's a nonaccountable plan and should be included in your wages on your W-2. Many companies miss this distinction and incorrectly handle car allowances. Our payroll department actually appreciated the heads-up because it helped them avoid potential issues during an IRS audit.

This is really good advice. What specific California deductions were you able to take? I'm also in CA and have a car allowance situation. I assumed if I couldn't deduct it federally, I couldn't deduct it on my state return either.

For California, I was able to deduct unreimbursed employee business expenses on Schedule CA (540), including the difference between my actual vehicle expenses and the allowance I received. California still allows itemized deductions for employee business expenses that exceed 2% of your AGI. You'll need to complete federal Form 2106 to calculate your expenses (even though you can't use it for a federal deduction), then transfer that information to your California return. Just be aware this creates a difference between your federal and state returns, which makes tax preparation more complex. The California Franchise Tax Board has guidance on this - it's under "California Adjustments" in their instructions.

Great question about estimated quarterly taxes! Yes, if your employer isn't withholding taxes on the car allowance and it creates a significant tax liability, you may need to make estimated quarterly payments to avoid underpayment penalties. The general rule is that you need to pay at least 90% of your current year's tax liability or 100% of last year's tax liability (110% if your prior year AGI was over $150,000) to avoid penalties. If the additional tax from your $6,600 car allowance pushes you below these safe harbor thresholds, you should consider making estimated payments. You can calculate this by estimating your tax rate and multiplying it by the allowance amount. For example, if you're in the 22% federal tax bracket plus your state rate, you might owe around $1,500-2,000 annually on that $6,600. You could either increase withholding from your regular paychecks (using Form W-4) or make quarterly estimated payments using Form 1040ES. I'd recommend talking to a tax professional to make sure you're covered for next year!