IRS commuter benefits
Twenty-five years ago, a simple yet ingenious idea took root: By allowing workers to defray public transportation costs through their employers' benefits packages, we could reduce traffic congestion and improve air quality. In 1998, Congress amended the tax code to allow employees to take advantage of commuter benefit using their own pre-tax dollars.
Today, commuter benefits have joined health, retirement and disability at the top of the list of voluntary benefits offered to employees by their employers. Federal law allows employers three ways to reduce the cost of commuting via public transportation (bus, vanpool, train or ferry) for employees. Companies can offer employees:
- A tax-free employer-paid benefit
- A pre-tax employee-paid payroll deduction, or
- A combination of the above
The tax-free and pre-tax limits for employer provided commuter (fringe) benefits for the 2015 tax year follow:
If an employer pays an amount over the monthly limit to an employee, it should be treated as taxable income.
- $130 per employee per month for vanpool, bus, rail, ferry (all public transportation)
- $250 per employee per month for qualified parking
- $380 per employee per month for a combination of public transportation and parking
An employee may pay part of all of the cost of public transportation with pre-tax income via a payroll deduction; the employee can set aside up to $130 per month of pretax income during 2015 tax year. The employee saves federal withholding and FICA payroll taxes on the amount of deducted. The employer saves paying FICA on the amount deducted. Pre-tax payroll deductions are referenced in the Internal Revenue Code, Section 132(f) as amended by TEA-21, Title IX, Section 910.
Bicycle Benefits Allowed -
In 2008, the Energy Act added “qualified bicycle commuting reimbursement” to the list of qualified transportation fringe benefits.
“Qualified bicycle commuting reimbursement” means any employer reimbursement of up to $20 per month for reasonable expenses incurred by the employee for the purchase of a bicycle and bicycle improvements, repair, and storage if the bicycle is regularly used for travel between the employee's residence and place of employment. The $20 amount is not indexed for inflation as are the other qualified transportation fringe benefits.
A “qualified bicycle commuting month” is any month in which an employee:
- (I) regularly uses a bicycle for a substantial portion of the travel between his residence and his place of employment, and
- (II) does not receive any other qualified transportation benefit for:
- vanpool (commuter highway vehicle transportation),
- transit, and
Unlike the other qualified transportation fringe benefits, a qualified bicycle commuting reimbursement benefit cannot be funded through employee pre-tax income.
To review the IRS’ Employer Tax Guide to Fringe Benefits, go to: http://www.irs.gov/pub/irs-pdf/p15b.pdf
Please check with your company’s tax advisor on all IRS related issues.