The IRS issued new guidance on the use of electronic media cards to provide transit benefits. The new rules recognize changes in technology since earlier guidance was issued.
The new rules address three electronic transit payment methods: (1) Smartcards; (2) Terminal-Restricted Debit Cards (TID Cards); and (2) Merchant Category Code- Restricted Debit Cards (MCC Cards).
Smartcards. These cards are provided by transit systems to individual employees with a stored value on the card. The employer pays the transit agency, and the transit agency puts funds on the Smartcard.
TID Cards. Employers issue these types of cards to employees. Funds are loaded on the cards each month and employees use the cards to pay for transit expenses. The cards can be used only where transit benefits are sold.
MCC Cards. These cards are the same as TID cards, but the merchant can sell items in addition to transit benefits.
Important points in the guidance include:
- Confirmation that there are no real differences between TID Cards and MCC Cards, and both can be used to provide nontaxable transit benefits.
- Delivery charges incurred in purchasing a transit pass can be part of the nontaxable benefit.
- The employer must ensure that an employee has incurred the costs for transit before providing the benefit. Employers can have employees make annual certifications that they use their cards only to purchase transit benefits.
- Beginning 2015, employers cannot provide cash reimbursement if a TID card is readily available.
Employers with transit programs should review their plan administration to make sure it complies with new guidance.
