Many employers, particularly employers in urban locations, provide qualified transportation benefits to their employees. A Qualified Transportation Plan is offered under Section 132 of the Internal Revenue Code and can allow employees to pay a portion of their commuting expense with pre-tax dollars.
The pre-tax exclusion from income applies to the following benefits:
- A ride in a commuter highway vehicle between the employee's home and work place.
- A transit pass.
- Qualified parking.
Commuter Highway Vehicle.
A commuter highway vehicle is any vehicle that seats at least 6 adults (not including the driver). At least 80% of the vehicle's mileage must be for transporting employees between their homes and work place with employees occupying at least one-half of the vehicle's seats (not including the driver's).
Transit pass.
A transit pass is any pass, token, farecard, voucher, or similar item entitling a person to ride, free of charge or at a reduced rate, on mass transit (including bus, rail or ferry- public or private), or in a vehicle that seats at least 6 adults (not including the driver) if it is operated by a person in the business of transporting persons for pay or hire.
Qualified parking.
Qualified parking is parking on or near the business premises or parking on or near a commuting location. It does not include parking near an employee's home.
Providing Benefits and Reimbursement.
Qualified transportation benefits can be provided directly by the employer or through a bona fide reimbursement arrangement.
Direct benefits are amounts provided to an employee for qualified benefits that are excluded from the employee recipient's income.
A reimbursement arrangement allows an employee to set aside money pre-tax for potential reimbursement. For transit accounts, out-of-pocket expenses for passes, tokens, farecards, vouchers or similar expenses may be eligible for reimbursement. A cash reimbursement for a transit pass qualifies for reimbursement only if a voucher for a transit pass is not readily available for direct distribution by the employer. A voucher is considered readily available for direct distribution if an employer can get the voucher without being imposed additional charges.
For parking accounts, out-of-pocket expenses for the parking lot charge may be eligible for reimbursement.
Contributions.
The maximum monthly pre-tax contribution amount for a transit account is $125 and for a parking account is $240 (2012 numbers). Employees who do not use the full contribution for the month may carry over the unused amounts to subsequent months. The tax benefit applies whether an employer provides only one of the allowable benefits or a combination of benefits.
BAS administers qualified transportation plans for employers and can assist with implementation and ongoing administration. For more information, please contact sales@BASusa.com.
