Taxable Employer-Provided Vehicle & 3401(a) Compensation

Would appreciate any insight here. An employer provides an employee a vehicle for business and personal use. There is no substantiation, etc. The full value is taxable to the employee. As a taxable, non-cash fringe benefit, the employer normally would be required to withhold federal income tax based on the value of the non-cash fringe benefit provided to the employee. Say the value is $500 per month.

However, Section 3402(s) and Announcement 85-113 say that an employer can choose not to withhold federal income tax from the value of a "vehicle fringe benefit" (a taxable, employer-provided vehicle). Even though withholding is optional, there is nothing in Section 3401(a) itself that exempts taxable vehicle fringe benefits from "wages" as defined in Section 3401(a). 

So is the $500 per month included in 3401(a) wages for plan purposes? My initial reaction is yes, but interested to hear what others think.

For what it's worth, this differs from GTL over $50,000, which is specifically excluded from 3401(a) wages in Section 3401(a)(14) (whereas vehicle fringes are not excluded in Section 3401(a), but rather subject to optional withholding under Section 3402(s)).

A rule of thumb is if it appears on the employee's pay stub, it is 3401(a) compensation.  (This rule of thumb is not 100% reliable since it is subject to the reporting accuracy of the payroll provider.)

You are correct that vehicle fringe benefits are not listed among the 20 subparagraphs under section 3401(a).

The IRS Fringe Benefit Guide Publication 5137 (attached) is a resource for wading through the swamp of the various fringe benefits.  It includes Employer-Provided Vehicles on page 36.  And you are correct that Group-Term Life Insurance (page 58) is treated differently.  (By the way, the GTL has some quirks related to dependents, retirees and terminated employees that many recordkeepers are no aware of.)

Given your description of this employer's vehicle policy, I would say the $500 per month is included in 3401(a) wages. 

If this employer has a plan that uses 3401(a) wages as plan compensation, then the employer would need to explicitly exclude this vehicle benefit and any other fringe benefit that it does not want to use for calculating plan benefits.

Fringe Benefit Guide Publication 5137.pdf

It is a taxable fringe benefit and included in the 3401(a) compensation definition regardless of the employer's discretionary decision on whether to withhold unless the plan definition also has the permitted fringe benefit exclusions. The 401k Answer Book has a nice table that shows the various 414s safe harbor compensation definitions, inclusions, exclusions and optional exclusions. Other publications likely have similar, 

Excellent, thank you both!