Issue Number: IR-2006-112Inside This Issue





WASHINGTON — To encourage their employees to purchase environmentally-friendly hybrid cars, several companies reportedly are offering “rebates” or cash incentives to their employees in select areas to offset the purchase price of these vehicles. Just like other forms of compensation, these cash incentives are taxable compensation.

Employers should include the cash incentive amounts in employees’ compensation reported on year-end Form W-2 earnings statements. The cash incentives also are subject to income tax withholding and employment tax. The tax code provides for an exclusion from income for employee discounts only if the employer produces the product and certain other requirements are met.

The tax code already includes incentives for the purchase of hybrid cars. The Alternative Motor Vehicle Credit for hybrid vehicles applies to vehicles purchased on or after Jan. 1, 2006, and it may be as much as $3,400 for those who purchase the most fuel-efficient vehicles.

For more information, go to IRS.gov.

Related Item:

• Hybrid Cars and Alternative Motor Vehicles

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<Best Tank Economy!><Best Tank Endurance!>

Still not a bad deal - if your employer gives you $3000 toward buying a hybrid, even at the highest bracket you still end up with $2000 or so. I'd take it.....

Not taking the deal is the same as not wanting a raise because of more taxes.

All income is taxable, regardless of the form it comes in. The only employee benefit that's non-taxable is typically 401(k) matching and the employer's share of your health care benefits. Anything else your employer gives you in cash or non-cash form is compensation, and thus taxable income.

I wish my emplorer gave me a taxable benefit to purchase my hybrid.

Me too. No, wait. I work for the federal government. So, I guess they ARE giving me an incentive. A tax break...

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Mine does.....overtime!

I get all the overtime I want to work. Getting paid for it is a different story.

I'm in the same boat, being in the military and all.

I can't give my troops pay raises and overtime, but I definitely give them time off when I can. Nothing like walking up to someone on a Thursday who's been doing a great job all week and telling them to leave and not come back until Monday morning...

<Best Tank Economy!><Best Tank Endurance!>

Only thing better is to do the same on a Wednesday....