Vision Payroll

The American Recovery and Reinvestment Act of 2009, also known as ARRA, increased the monthly exclusion for transit passes and commuter highway vehicles under §132 of the Internal Revenue Code of 1986 (IRC). For January and February 2009, the maximum excludible amount of qualified transportation fringes was $230 per month for qualified parking and $120 per month for transit passes and commuter highway vehicles. Starting in March 2009, the excludible amount for transit passes and commuter highway vehicles increased to $230 per month. The qualified parking fringe remained the same. The amounts will be indexed for inflation for 2010. The fringe benefits can be either paid by the employer and excluded from income or paid from funds contributed on a tax-free basis to a transit reimbursement account as part of a plan established by employers. Contact Vision Payroll if you have any questions on qualified transportation fringe benefits under IRC §132.

In a response to Senators Richard Durbin (D-IL) and Barack Obama (D-IL), the Internal Revenue Service, in Information Letter 2009-0012, explains why employees who terminate employment are not entitled to receive any remaining balance in their transit reimbursement accounts.

Employees may voluntarily elect under §132 of the Internal Revenue Code of 1986 (IRC) to contribute a portion of their earnings to transit reimbursement accounts. Employees are technically not purchasing the benefit themselves, since doing so would require them to receive taxable compensation. The legal form of the transaction is that the employees are given a choice between cash compensation and the benefit provided by the employer. Once employees elect to have the benefit provided by their employers, employees are “no longer entitled to receive that compensation.” If the employees could choose to receive cash compensation, the entire value of the fringe benefit and cash compensation received would be taxable. Since employees forfeit their right to receive cash compensation when electing the fringe benefit, unused balances at termination of employment are funds of the employer, not the employee.

Contact Vision Payroll if you have any questions on qualified transportation fringe benefits under IRC §132.

This week’s question comes from Luna, a business owner: I have employees who bicycle to work; can I reimburse them for their costs? Answer: §132(f) of the Internal Revenue Code has been amended by §211 of the Emergency Economic Stabilization Act (Public Law 110-343 or the “bailout bill”) so that effective with tax years beginning after December 31, 2008, employers may reimburse employees who “regularly [use] the bicycle for a substantial portion of the travel between [their] residence and place of employment” as long as the employee does not receive any other “qualified transportation fringe”. Costs to be reimbursed include “purchase of a bicycle and bicycle improvements, repair, and storage”. The limitation is $20 per month multiplied by the number of qualified commuting months. Contact Vision Payroll if you have any question on reimbursements for any qualified transportation fringe benefit.