The IRS confirmed that unused compensation reduction contributions to a qualified parking plan may not be transferred to a flexible spending account or returned to an employee. Qualified parking plan contributions may be carried over to subsequent years for future commuting expenses (so long as reimbursements for any month do not exceed the maximum excludable amount), but contributions may not be refunded to a participant.
Information Letter 2022-0002 addresses an inquiry from a participant in an employer’s qualified transportation plan. The employee was working from home permanently due to the Covid-19 pandemic and no longer had use for funds he contributed to his employer’s qualified parking plan. The participant asked the IRS if he would be allowed to transfer the amounts to his health flexible spending account plan. The IRS said transferring amounts to a health FSA would not be permitted.
The letter also states “Under no circumstance can an employer provide a cash refund, even when the employee’s compensation reduction amounts exceed the employee’s qualified transportation fringe benefits.”
As employers allow employees to work remotely, commuting expenses are not incurred as frequently as before the pandemic. Employers with qualified transportation plans may find that employees have account balances that are not being used. There is now clear guidance that employers are not permitted to refund unused amounts, nor are employers permitted to transfer those amounts to other benefit plans.
A copy of the IRS Information Letter may be accessed by clicking here.
