What are qualified transportation fringe benefits?

Within limits, qualified transportation fringe benefits are excludable from the gross income of participating employees. They are transportation in a commuter highway vehicle, transit passes and qualified parking. Beginning in tax years after December 31, 2008, a qualified transportation fringe benefit is also available for riding a bike to work.

There are two categories of qualified transportation fringes for purposes of determining the amount that is excludable from gross income: (1) transportation in a commuter highway vehicle and transit passes, and (2) qualified parking. A statutory monthly limit is imposed on the value of excludable benefits from each category. Employees would be able to receive benefits from each category provided that the applicable statutory monthly limit for that category is not exceeded. The amount by which the value of qualified transportation fringes provided to an employee exceeds that limit would be included in the employee's wages for income and employment tax purposes.

A qualified transportation fringe benefit for bicycle commuting is available only if the employee did not receive any other transportation fringe benefit. Unlike other qualified transportation fringe benefits, the bicycle commuting fringe may not be provided pursuant to an elective salary reduction agreement.

Persons eligible to receive transit benefits. Qualified transportation fringe benefits can be provided only to employees. They cannot be provided to self-employed individuals, including partners, two-percent shareholders of S corporations, sole proprietors and other independent contractors.

Nondiscrimination. Qualified transportation fringes are not subject to nondiscrimination rules-they may be provided in a discriminatory manner and the value of the benefit is not included in the employee's gross income.

Commuter highway vehicles. A commuter highway vehicle is any highway vehicle that has a seating capacity of at least six adults, excluding the driver, like a van.

Vanpooling. At least 80 percent of the vehicle's mileage use must be reasonably expected to be for transporting employees between home and work. On average, at least one-half of the adult capacity must be used. This is commonly known as vanpooling.

Tax treatment. For months beginning on or after February 17, 2009, an employee may exclude up to $230 worth of employer reimbursement for vanpooling or other transportation via commuter highway vehicle. (Note: The amount was $120 for months beginning on or after January 1, 2009, but before February 17, 2009. The American Recovery and Reinvestment Act of 2009 (ARRA) increased the limit to match that for employer-provided parking. The increased limit is effective through December 31, 2010.) This amount is determined on a monthly basis. The limit for vanpooling is combined with transit passes (see below). It is applied once, regardless of whether the vanpooling and transit passes are provided separately or in combination. This amount is subject to periodic increases.

Transit passes. A transit pass is any pass, token, fare card, voucher, or similar item that entitles a person to transportation at no cost or at a reduced price on mass transit facilities. A transit pass can also be provided by anyone in the business of transporting people for compensation or hire in a commuter highway vehicle (with a seating capacity of six adults, not counting the driver).

Tax treatment. For months beginning on or after February 17, 2009, an employee may exclude up to $230 for employer-provided transit passes. (Note: The amount was $120 for months beginning on or after January 1, 2009, but before February 17, 2009. The American Recovery and Reinvestment Act of 2009 (ARRA) increased the limit to match that for employer-provided parking. The increased limit is effective through December 31, 2010.) As is true with commuter highway vehicles, the exclusion for transit passes is determined on a monthly basis and is applied once, regardless of whether the vanpooling reimbursement and transit passes are provided separately or in combination. This amount is subject to periodic increases.

Qualified parking. Employer-provided parking is an employee benefit in certain areas. In order to be tax-free to employees, the parking must be qualified. Qualified parking includes access to parking provided to an employee on or near the employer's business premises. It also includes parking premises near a location from which an employee commutes to work.

Tax treatment. For qualified parking, an employee may exclude up to $230 (as indexed for 2009) per month. This amount is subject to periodic increases.

Qualified bicycle commuting. A qualified bicycle commuting reimbursement is available in tax years beginning after December 31, 2008, to an employee who regularly uses a bike for a substantial portion of travel between the employee’s residence and place of employment and the employee did not receive any other transportation fringe benefit. It refers to any employer reimbursement during the 15-month period starting with the first day of a calendar year to an employee for reasonable expenses incurred by the employee during the calendar year for the purchase of a bike and bike accessories, repair and storage of a bike that is regularly used to ride to and from work.

Tax treatment. For qualified bicycle commuting, an employee may exclude up to $20 per month. This amount is not subject to inflation adjustment. Unlike other qualified transportation fringe benefits, the bicycle commuting fringe may not be provided pursuant to an elective salary reduction agreement.