(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 However, on December 20, 2019, this was repealed as part of the Further Consolidated Appropriations Act of 2020.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

 
Category Transit Commuter Highway Vehicle (e.g., vanpool) Qualified Parking Qualified Bicycle Commuting Reimbursement
Incentive Levels Up to $270/month* for transit expenses Up to $270/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 $270/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 $270/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, then an 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 $270 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 $270/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 $270/month statutory limit and receives more after-tax spendable income.
Employee may combine the pre-tax benefit with employer subsidies up to $270/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 $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.

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