COVID-19 Relief for Employers Using the Automobile Lease Valuation Rule

In response to the ongoing COVID-19 pandemic, the IRS issued Notice 2021-7, introducing temporary relief for employers that use the automobile-lease valuation rule to determine the value of an employee’s personal use of an employer-provided automobile.

An employee’s personal use of an employer’s automobile creates income inclusion for employees subject to employment tax and reporting. However, applying the cents-per-mile valuation rule instead of the automobile-lease valuation rule can greatly reduce income inclusion by employee’s who use employer-provided automobiles.

Below, we cover key highlights of Notice 2021-7, potential benefits for employers, and more.

Cents-per-Mile Valuation Rule

If certain requirements are satisfied, employers and employees using the automobile-lease valuation rule may instead use the vehicle cents-per-mile valuation rule to determine the value of the personal use. The change in valuation methods begins on March 13, 2020, which is the presidentially declared COVID-19 emergency declaration date.

The pandemic has negatively impacted many businesses and their employees who use the automobile-lease valuation rule, resulting in employers including increased amounts in employees’ wages for 2020 compared to prior years. Utilizing the cents-per-mile valuation rule may result in less income inclusion for employees based on their actual personal use, which may more accurately represent current circumstances.

Notice Highlights

Some key highlights employers should consider when applying Notice 2021-7 include the following:

  • COVID-19 onset. The COVID-19 pandemic is considered to have commenced on March 13, 2020.
  • Consistency rules. These rules were modified, allowing employers to change valuation methods due to the impact of the COVID-19 pandemic, but only if, at the beginning of 2020, they expected an automobile to be regularly used in their trade or business. The vehicle’s fair market value can’t exceed $50,400.
  • Cents-per-mile valuation restrictions. Employers that elect to change their valuation method during 2020 may only use the cents-per-mile valuation after March 12, 2020.
  • Lease valuation rule. The lease valuation rule must be used for January 1, 2020, through March 12, 2020, and the value of the vehicle must be prorated for this period.
  • Overpayment corrections. Employers may file and correct any overpayment of federal employment taxes.


For 2021, employers and employees may revert to the automobile-lease valuation rule or continue using the cents-per-mile valuation rule if the below requirements are met:

  • Apply consistent valuation method. Generally, both employers and employees need to be consistent in the use of a valuation method during the year, which is either the automobile-lease valuation rule or the cents-per-mile valuation rule.
  • Meet special valuation rules. Employees that use the special valuation rules for vehicles must use the same special valuation rule as their employer.
  • Adhere to consistency rules. The consistency rules in Treasury Regulation Section 1.61-21(e) will apply to both the automobile-lease valuation rule and cents-per-mile valuation rule as of January 1, 2021—as if January 1, 2021, were the first day the vehicle was made available to the employee for personal use.
  • Continue to use 2021 special valuation rule. The special valuation rule used for 2021 must continue to be used by the employer and employee for all subsequent years, except to the extent the employer used the commuting valuation rule.

We’re Here to Help

Applying these rules can be complex. To learn more about the potential impacts of Notice 2021-7 on your business, please reach out to your Moss Adams professional.

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