(Last Updated on 1/7/19)

Qualified transportation fringe benefits (Section 132(f) of the Internal Revenue Code) or “Commuter Tax Benefits” are like money in the bank. Employers save on payroll related taxes. Employees save on federal income taxes.

According to IRS, the Qualified Transportation Fringe Benefit limit will increase from $260 per month to $265 per month in 2019. For taxable years beginning in 2019, the monthly limitation under § 132(f)(2)(A) regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $265. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $265.

Source: https://www.irs.gov/pub/irs-drop/rp-18-57.pdf

Qualified bicycle commuting reimbursements, previously allowed up to $240 per year prior to 2018, remains ineligible in 2019 as a tax-free.  Employers may continue to provide the bicycle benefit as a taxable benefit.

In late 2018, the IRS issued two notices (Notice 2018-99 and  Notice 2018-100) that provided interim guidance with respect to the new treatment of qualified transportation fringe benefits following the changes made by the Tax Cuts and Jobs Act (TCJA). The TCJA required parking provided by an employer to be treated either as a non-deductible expense by the employer (or as unrelated business taxable income (UBTI) in the case of a taxexempt employer) or as taxable income by the employee. The interim guidance seeks to address certain concerns expressed by tax-exempt organizations regarding the penalties associated with failure to pay quarterly estimated taxes in 2018 in connection with the new tax treatment of qualified transportation fringe benefits.

Notice 2018-99 provides interim guidance with respect to the calculation of parking expenses for qualified transportation fringes that are now nondeductible under Internal Revenue Code Section 274(a)(4) (the “disallowance”). Notice 2018-100, which provides a waiver for certain tax-exempt organizations for the underpayment of estimated income tax payments resulting from the changes to the tax treatment of qualified transportation fringes.

Please consult your tax professional for guidance in complying with the TCJA requirements and the interim guidance.

Employers that subsidize at least $30 per month for transit or vanpool fares may meet the National Standard of Excellence and qualify for designation under  Best Workplaces for Commuters.

 

Qualified Transportation Fringe Benefits

 
Category Transit Commuter Highway Vehicle (e.g., vanpool) Qualified Parking Qualified Bicycle Commuting Reimbursement
Incentive Levels Up to $265/month* for transit expenses Up to $265/month* for commute trip in a vehicle with a seating capacity of at least six adults (excluding the driver), with at least 80 percent of the vehicle’s mileage for a year is reasonably expected to be for commuting and on trips during which the number of employees transported for commuting is at least one-half of the seating capacity of the vehicle (excluding the driver) Up to $265/month** for parking at or near an employer’s worksite, or at a facility from which employee commutes via transit, vanpool, or carpool Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.
Employer Employers may give their employees up to $265/month for transit vouchers, commuter highway vehicle fares and/or commuter parking fees.

Change in 2019: Private sector employers are no longer able to deduct the tax-free qualified transportation fringe benefit payments to employees as a business expense. Only if an employer treats the qualified transportation fringe benefits as taxable W-2 wages to the employee, the employer can deduct the expenses of providing those benefits.

Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.
Employers may allow employees to use up to $265 per month in pre-tax income to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.

Employers may reduce their payroll tax contribution of the pre-tax income used by employees to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.

Employee Most employees may receive up to $265/month for purchase of transit vouchers, commuter highway vehicle fares and/or parking fees from his or her employer. This subsidy value will not appear on their W-2 form as income. Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.
Employee pays for commute benefit with the pre-tax income up to the $265/month statutory limit and receives more after-tax spendable income.
Employee may combine the pre-tax benefit with employer subsidies up to $265/month for each to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.

 

* tax free transit and vanpool benefit limit increased from $260 per month in 2018.  It was raised to $265 per month for beginning January 1, 2019.

** tax free parking benefit limit increases from $260 per month in 2018 to $265 per month beginning January 1, 2019.

 

Additional Resources