|(Last Updated on 12/7/2020)
As per IRS Revenue Procedure 2020-45, the Qualified Transportation Fringe Benefit limit will remain at $270 per month in 2021. 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 $270. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $270.
Qualified bicycle commuting reimbursements, previously allowed up to $240 per year prior to 2018, remains ineligible in 2021 as a tax-free benefit. Employers may continue to provide the bicycle benefit as a taxable benefit.
On June 23, 2020, the Internal Revenue Service issued proposed regulations (IR-2020-125) that provide guidance for the deduction of qualified transportation fringe and commuting expenses. According to the IRS, “The Tax Cuts and Jobs Act (TCJA) does not allow deductions for qualified transportation fringe (QTF) expenses and does not allow deductions for certain expenses of transportation and commuting between an employee’s residence and place of employment.”
The law also provided that a tax-exempt organization’s unrelated business taxable income (UBTI) is increased by the amount of the QTF expense that is nondeductible. However, on December 20, 2019, this was repealed as part of the Further Consolidated Appropriations Act of 2020. This repeal was retroactive to the original date of enactment by the TCJA.
These proposed regulations specifically address the elimination of the deduction for expenses related to QTFs provided to an employee of the taxpayer. The proposed regulations also provide guidance and methodologies to determine the amount of QTF parking expense that is nondeductible. The guidance also includes definitions and special rules to clarify and simplify the calculations underlying the methodologies.
Please consult your tax professional for guidance in complying with the TCJA requirements and the subsequent 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
* tax free transit and vanpool benefit limit increased from $265 per month in 2019. It was raised to $270 per month for beginning January 1, 2020. The limit remains unchanged for 2021.
** tax free parking benefit limit increases from $265 per month in 2019 to $270 per month beginning January 1, 2020. The limit remains unchanged for 2021.
- IRS Final Rule on Section 132(f) (pdf)
- Executive Order 13150 Federal Workforce Transportation
- Bureau of Labor Statistics 2019 National Compensation Survey (Quality of Life Benefits: Access) shows percent of civilian workforce with subsidized commuting benefits
- Department of Defense Mass Transit Benefit Program
- Veterans Administration Transit Benefit Program (2011)