A qualified transportation plan is a tax-favored arrangement under Code section 132 that allows employees to contribute a portion of their compensation, pre-tax, to pay for specific transportation expenses. There are two types of qualified transportation plans: (1) Transit & Vanpooling Accounts and (2) Parking Accounts. Under these plans, reimbursement may be made for a ride in a commuter highway vehicle between the employee’s home and workplace; a transit pass; or qualified parking.
Qualified Transportation.
A commuter highway vehicle is any highway vehicle that seats at least 6 adults (not including the driver). The user must reasonably expect that at least 80% of the vehicle’s mileage will be for transporting employees between their homes and workplace with employees occupying at least one-half of the vehicle’s seats (not including the driver’s seat).
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 or in a commuter highway vehicle.
Qualified parking is parking an employer provides to employees on or near the business premises. It includes parking on or near the location from which employees commute to work using mass transit, commuter highway vehicles, or carpools. It does not include parking at or near the employee’s home.
Pre-Tax Benefit.
Employers may offer qualified transportation benefits on a pre-tax basis by allowing employees to enter into a compensation reduction agreement. Under this agreement, the employee will elect to reduce salary for contribution to an account to be used for qualified transportation expenses. For each month, the amount of the compensation reduction cannot exceed the monthly limits for transportation benefits.
Employees may contribute up to the IRS monthly limit to either account or both accounts. In 2018, the maximum monthly contribution is $260 for transit accounts and $260 for parking accounts. The contribution is calculated monthly.
In 2018, the employer business deduction for providing qualified transit/parking benefits was eliminated.
Plan Participation.
Since the benefit is month to month, employees may opt in or out at any time. The benefit is pre-funded (employees can get out what they put in), so the opt out must be prospective only.
Substantiation Requirements.
Employers must establish a “bona fide” reimbursement arrangement through which employees submit expenses for review and reimbursement from their qualified transportation account. Before payment, the employer must confirm that the employee has incurred expenses for transportation in a commuter highway vehicle, transit passes or qualified parking (see qualified transportation description, above).
The expense must be substantiated within a “reasonable period of time” which has been interpreted as 180 days after it has been paid. A copy of a receipt or an employee certification at the time or reimbursement may be reasonable reimbursement. The reimbursement must be calculated separately for each month and must not exceed the statutory limit for any month.
