OK, I swear I'll get off the hybrid car kick ... as soon as the IRS does.
Remember my June 9 post that mentioned how some companies are giving their employees extra cash to help them buy hybrid vehicles? No? Then you can re-read it here, about halfway down.
Well, today the IRS issued a release alerting such workers that just as there's no free lunch, there's no tax-free commute. According to the tax agency, employer cash to help defray a hybrid purchase is taxable.
Such "rebates" or cash incentives to employees for buying these fuel-efficient vehicles are just like other forms of compensation, i.e., taxable income.
If your boss gave or gives you such a bonus, your employer must include the amount on your year-end W-2 earnings statement. Even before you get that paperwork, your company should take out the appropriate withholding taxes when you get the hybrid incentive payment.
The main reason for taxing your employer's good will is that the tax code only allows employee discounts to be excluded from taxation in cases where your employer produces the product and meets other certain requirements. So unless you work for a carmaker that makes a hybrid vehicle and gives you a break to buy it, you're out of luck when it comes to this particular tax exemption.
Plus, the IRS doesn't like it when you double dip on tax breaks. Remember what trouble George Costanza got into? And that was just chips.
Since as a buyer of a hybrid, you're already eligible for a tax credit (details, in addition to the entry cited above, here [April 24], here [June 1], here [June 27] and here [earlier today]; jeez, maybe this is a car blog!), Uncle Sam frowns on you getting two breaks for the same situation.
So while the cash incentive from your boss is a nice gesture and definitely will help out your cash flow when you buy a hybrid, you'll end up paying at least something in taxes for the benefit.