tax consequence/benefit of monthly per diem for vehicle?

Answer 1

If you are an employee and are given an amount for your vehicle business use without having to account for your expenses, then the monthly amount is treated as income and is included in your wages on your W-2. These amounts are also subject to Social Security and Medicare taxes.

In order to deduct these expenses on your tax return, you must itemize your deductions on Schedule A. You account for your vehicle expenses using Form 2106 and transfer the amount to Schedule A as a Miscellaneous Deduction. Only amounts in excess of 2% of your adjusted gross income can be deducted.

So, really no tax benefits when compared to an accountable plan. If your employer reimburses you for business expenses you account for, these reimbursements do not appear as wages, are not taxable to you, are not subject to Social Security and Medicare taxes, and do not increase your AGI and possibly disqualify you from other credits or deductions.

Answer 2

If it's a flat monthly allowance, it's fully taxable and will be included on the employee's Form W-2 as part of gross wages.

The employee may claim the expenses for the business use of the vehicle if they itemize deductions. File Form 2106 along with Schedule A on their Form 1040 tax return.