New tax Rules Reshape the Landscape of Company Car Benefits
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The US tax code is undergoing a significant overhaul regarding company vehicles, especially those powered by gasoline or diesel. These changes, designed to incentivize greener transportation options, will impact both businesses and employees who utilize company cars.
Phased-Out Deductions for Combustion Engine vehicles
Starting January 1,2025,the tax deductibility of company cars with gasoline or diesel engines will begin a phased reduction. This applies to vehicles purchased, leased, or rented since July 2023. A transitional period exists for cars registered before January 1,2026. From 2025, the deduction will be capped at 75% of costs, decreasing by an additional 25 percentage points annually until it reaches zero in 2028. For vehicles acquired after January 1,2026,no deductions will be allowed.
Electric and Hydrogen Vehicles Remain Favored
Conversely, fully electric and hydrogen-powered company cars will continue to enjoy full tax deductibility for the foreseeable future. However, even for these eco-pleasant options, a slight reduction is anticipated.Beginning in 2027, the deductibility for these vehicles will decrease to 95%, with further reductions planned in subsequent years.
Increased Solidarity Contributions and Benefit Taxes
Beyond the deductibility changes,employers face increased solidarity contributions on combustion engine company cars used for personal purposes. This contribution, calculated based on CO2 emissions, has already seen a significant increase, multiplying by 2.25 since July 2023. This multiplier will rise to 2.75 in January 2025 and continue to increase in the following years. Electric and hydrogen vehicles will be subject to a minimum contribution.
Furthermore, the tax on employees’ private use of fossil fuel company cars—the taxable benefit in kind—will also increase starting in 2025. This tax calculation considers CO2 emissions and the age of the vehicle, with the tax increase moderated by a correction factor based on the car’s age.
These changes present both challenges and opportunities for businesses. Companies will need to carefully evaluate their vehicle fleets and consider the long-term implications of these tax adjustments. The shift towards electric and hydrogen vehicles is clearly incentivized, potentially leading to a significant change in the corporate transportation sector.
Senior Editor, world-today-news.com: Welcome to the show today,Daniel Ramirez. Daniel is a renowned tax advisor specializing in corporate fleet management and has a deep understanding of the recent changes to the US tax code relating to company vehicles. Daniel, thank you for joining us.
Daniel ramirez: Thank you for having me. It’s a pleasure to be here.
Senior Editor:Today we’re hoping to shed some light on these notable changes for both businesses and employees. There seems to be a clear shift towards incentivizing greener transportation options.Can you give us a basic rundown of the new rules?
Daniel Ramirez: Absolutely. Starting January 1, 2025, we see a phased reduction of tax deductibility for company cars that run on gasoline or diesel. This applies to vehicles acquired from July 2023 onwards.The good news is that there’s a transitional period for vehicles registered before January 1, 2026. Essentially, companies will see a cap on their deductions starting at 75% of costs in 2025, decreasing by 25% annually until it reaches zero in 2028.
Senior Editor: So, businesses owning these types of vehicles will have to factor these reductions into their planning. What about electric and hydrogen-powered cars? Are they subject to the same changes?
daniel Ramirez: Not entirely. Fully electric and hydrogen-powered company cars continue to enjoy full tax deductibility for now. However, a slight reduction is anticipated starting in 2027, dropping to 95%, with further, although smaller, reductions planned in subsequent years. The government clearly wants to encourage the adoption of these greener alternatives.
Senior Editor: It definitely seems that way.Are there any other changes related to these green initiatives?
daniel ramirez: Yes, businesses will face increased “solidarity contributions” on combustion engine company cars used for personal purposes. This is calculated based on CO2 emissions and has already seen a significant increase since July 2023. There will be further increases in the upcoming years. Electric and hydrogen vehicles will have a minimum contribution but substantially lower than gasoline or diesel vehicles.
Senior Editor: Got it. it looks like a lot of these changes aim to deter the use of fossil fuel vehicles. What about employees using company cars? How will they be affected?
Daniel Ramirez: Employees will see increased taxes on their private use of fossil fuel company cars. this starts in 2025 and is calculated based on CO2 emissions and the age of the vehicle. However, there’s a correction factor based on the car’s age to somewhat moderate the tax increase.
Senior Editor: Wow, these are some significant changes. Any final thoughts for businesses and individuals navigating these new rules?
Daniel Ramirez: My advice is to carefully evaluate your fleet needs. Consider the long-term implications of these tax adjustments and capitalize on the incentives for electric and hydrogen vehicles. This could be a great opportunity to transition to a greener and potentially more cost-effective fleet in the long run.
Senior Editor: Excellent advice, Daniel. Thank you so much for sharing your expertise with us today. I’m sure our viewers found this information incredibly valuable.
Daniel Ramirez: You’re very welcome. It was my pleasure.
