Monday, October 06, 2008

Qualified Transportation Fringe Benefits for Bicycle Commuters

Emergency Economic Stabilization Act of 2008 : H.R. 1424 (bailout) bill signed into law by President Bush includes expanding qualified transportation fringe benefits (Section 132(f) ) to allow employers to reimburse employees with up to $20.00 per month for bicycle commuters.

For most employees, those who ride transit or commuter highway vehicles (e.g., vanpool) can receive up to $115.00 per month tax free. They can also receive $220.00 per month tax free for qualified parking. IRS will be developing guidance to provide implementation details/parameters.
We should expect to see IRS guidance on how this will be implemented but we can look to the existing guidance http://www.irs.treas.gov/pub/irs-regs/td8933.pdf to hazard a guess.

Cavaet – I’m no tax expert, yada yada so don’t use the following for implementation. It could be food for thought if IRS seeks public input on guidance.


First, it isn’t a tax deduction for individual commuters. Like the rest of Section 132(f), employers are permitted (not required) to allow employees to seek reimbursement of up to $240 per year (assuming they regularly bike to work for all 12 months). I would assume the employer can offer no reimbursement for bicycle commuters if they offer parking and/or transit subsidies. Or they can choose to offer less than $20 per month, too. You’d have to assume that the individual will have submit some receipts for reimbursement. Where the line is drawn as to what is reimbursable will have to be decided – e.g., bike helmets, lights, tires, routine maintenance, baseball cards for spokes (just kidding), etc.


Clearly, terms like “regularly uses” and “substantial portion” need to be clarified. It now says: `(I) regularly uses the bicycle for a substantial portion of the travel between the employee's residence and place of employment. While qualified transportation fringe benefits for commuter highway vehicles (e.g., vanpools) have a 80% use for commuting requirement, transit does not.


As a “reimbursement program”, employers will not be able to pre-pay. Current guidance says “A payment made before the date an expense has been incurred or paid is not a reimbursement.” This may mean that a person who purchases a bike in January with the intent to use it for commuting for the next 12 months, he or she may not get the full reimbursement amount (e.g., $240) in the first month.


It is interesting to note that to receive the bicycle commuter benenfit the individual can not "receive any benefit described in subparagraph (A), (B), or (C) of paragraph (1)" so it excludes people who are already receiving a transit, commuter highway vehicle or parking benefit. I interpret this as meaning that the employee has to choose one or the other (transit/commuter highway vehicle/parking benefit OR bicycle benefit). This clause is in contrast to the current law that allows employees to combine parking and transit tax free amounts (e.g., cost of parking at a rail station and the rail fare). It wouldn’t appear that the new bicycle benefit will be an additional sweetener for a bike-to-bus or bike-on-bus programs if transit subsidies are provided.


Another point - the monthly transit/vanpool and parking limits are subject to cost of living increases (increase in $5 increments if the cost of living is high enough). While this has caused parking to increase more than transit based on the current level, this also would mean that bicycle limits are unlikely to change (the $20 per month basis is too low for the $5 increment to kick in automatically).


You can find the full bill (HR 1424) at http://thomas.loc.gov/
See IRS' Taxable Fringe Benefit Guide http://www.irs.gov/pub/irs-tege/fringe_benefit_fslg.pdf for more information about Qualified Transportation Fringe Benefits (Section 132(f)).


You may also be interested in IRS' ruling in 2006 about when and how employer-provided transportation benefits provided through smartcards, debit or credit cards, or other electronic media are excluded from gross income under §§ 132(a)(5) and 132(f) of the Internal Revenue Code and from wages for employment tax purposes. See http://www.irs.gov/irb/2006-47_IRB/ar05.html

1 comment:

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Get $20/mth For Cycling To Work