IRS commuter benefits
As a result of the American Taxpayer Relief Act of 2012 (HR 8), Federal law allows employers three ways to reduce the cost of commuting via public transportation (bus, train, ferry or registered vanpool) or qualified parking for employees. Companies can offer employees:
- a tax-free employer-paid subsidy
- a pre-tax employee-paid payroll deduction, or
- a combination of the above (shared employee- employer-paid)
Tax-exempt and pre-tax limits are set by the IRS. The following are the limits for the 2013 tax year, but the effective date may allow for retroactivity back to January 1, 20121 if an employer so chooses:
- $245 per employee per month for vanpool, bus, ferry, rail (all public transportation)
- $245 per employee per month for qualified parking, or
- $490 per month per employee for both public transportation and qualified parking.
When the employee pays part or all of the cost of public transportation via a pre-tax payroll deduction, the employee can set aside up to $245 a month of pre-tax income. The employee saves federal withholding and FICA payroll taxes on the amount deducted. The employer saves paying FICA on the amount deducted. Employees may also share the cost with employers using after tax income. Pre-tax payroll deductions are referenced in the Internal Revenue Code, Section 132(F), as amended by TEA-21, Title IX, Section 910.
1Unless employers have strong benefits tracking records, they may be challenged to take advantage of 2012 retroactivity as benefit actions are reported monthly on W2s and most companies will have already completed their 2012 IRS data. The IRS should be developing a process for retroactivity and it is recommended that any employer interested should await IRS guidance and/or consult their corporate tax advisor.
Details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013. Other inflation adjusted items were published in October 2012 in Revenue Procedure 2012-41.
Bicycle Benefits Allowed -
The 2008 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 transortation benefit for:
- vanpool (commuter highway vehicle transportation),
- transit, and
Unlike the other qualified transportation fringe benefits, a qualified bicycle commuting reimbursement benefit cannott be funded through employee pre-tax income.
Please check with your tax advisor.