Certified Payroll Professional Practice Exam 2025 - Free CPP Practice Questions and Study Guide

Company-provided vehicles are often classified as non-cash benefits that can be imputed as income. This means that although the employee does not receive cash directly, the value of the vehicle and the associated expenses covered by the employer are considered part of the employee's overall compensation package. The IRS requires that the value of this benefit, usually calculated based on the fair market value or the amount of personal use of the vehicle, be reported as income on the employee's W-2 form.

In contrast, salary increases, annual bonuses, and stock options generally represent cash-based or cash-equivalent forms of compensation. These forms of compensation directly increase an employee's cash flow or the potential conversion to cash. Therefore, they are treated differently from non-cash benefits like a company vehicle, where the actual cash outflow to the employee does not occur until they sell or otherwise monetize the benefit received. This distinction is essential for understanding how different types of compensation are treated for tax purposes and in payroll calculations.