Tax-Free Qualified Transportation Fringe Benefits
By now, most employers are aware that they can provide tax-free transportation fringe benefits of parking, transit pass, van pooling and bicycle commuting reimbursement benefits to their employees. What never seemed appropriate from a policy (and fairness) viewpoint was that the monthly exclusion amount for parking far exceeds the amount allowed for transit passes and van pooling. In addition, employees can simply be reimbursed for the cost of their monthly parking while only transit passes (if available) are the only means of providing the benefit for public transportation. A “transit pass” is any pass, token, fare card, voucher, or similar item entitling a person to transportation (or transportation at a reduced price):
(1) on mass transit facilities (whether or not publicly owned), including, for example, rail, bus, and ferry; or
(2) provided by any person in the business of transporting persons for compensation or hire, if this transportation is in a highway vehicle with a seating capacity of at least six adults (excluding the driver).
Beginning in January 2009, the maximum monthly exclusion for parking is $230 and the maximum exclusion for transit passes and van pooling is $120. The monthly exclusion for bicycle commuting reimbursement is $20.
ARRA Increases Transit Pass And Van Pooling Benefit Exclusion
ARRA has temporarily leveled the playing field for tax exempt transportation fringe benefits. Beginning in March 2009 and through December 2010, the maximum exclusion for transit passes and van pooling will be the same as the exclusion for parking. Thus, for the remainder of 2009, transit passes and van pooling benefits valued up to $230 per month will be excluded from the income of the employees who receive such benefits. For 2010, the monthly exclusion for parking, transit passes and van pooling will the inflation adjusted $230 exclusion amount for parking. The exclusion for bicycle commuting reimbursement benefits remains unchanged by ARRA.
Salary Deferrals for Pre-Tax Transportation Fringe Benefits
Employers who cannot afford the increased benefits (or any transportation fringe benefits) can adopt an arrangement to permit their employees to pay for parking, van pooling and transit passes from their compensation with pre-tax dollars, up to the monthly exclusion amount. And, unlike cafeteria plans that require generally irrevocable annual elections to defer income, the pre-tax transportation fringe benefit arrangement can permit employees to change their deferral amounts monthly so long as the change relates only to income that is not yet payable to the employee.
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This post was written by Guest Blogger, Timothy J. Snyder, Esq., Chair of the Tax/Trusts & Estates and Benefits Section at Young Conaway. Tim has posted several important pieces on the impact on employers of the recently passed Economic Stimulus package. For employers who haven’t yet gotten up to speed on the numerous ways in which ARRA is changing the world of employee benefits, Tim’s posts are a great place to start, beginning with the very helpful Guidance for Employers on the New COBRA Subsidy. Also, be sure to get the new forms provided by the U.S. Department of Labor and the IRS, which you can do at these posts: DOL Releases Model COBRA Notices and Stimulus Package’s COBRA Subsidy: Guidance Update.
Maribeth L. Minella has also provided helpful commentary on the employment-related effects Stimulus Package. Her previous posts include: