Qualified Transportation Fringe Benefits Summary Table
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.
In 2013, under the fiscal cliff deal, Congress changed the effective date of Qualified Transportation Fringe Benefits (Section 132(f)) and extended its end date through December 31, 2013. The American Taxpayer Relief Act of 2012 now provides the option for most employers to provide transit and vanpool tax free benefits to their employees up to $245* per month. Previously, under the American Taxpayer Relief Act of 2012, employers may provide workers with up to $240 per month in tax-free transit and commuter highway vehicle (e.g., vanpool) benefits. The Act made this change effective as of January 1, 2012.** Prior to this change, the maximum level for transit and vanpool benefits was $125 per month for 2012.
The monthly limitation under Section 132(f)(2)(A) Qualified Transportation Fringe Benefits regarding the aggregate fringe benefit exclusion amount for vanpools (commuter highway vehicles) and transit passes is $245. The monthly limitation under Section 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $245. Commuters can receive both the transit and parking benefits (i.e., up to $490 per month). Employers can allow employees to use pretax dollars to pay for transit passes, vanpool fares and parking but not for bicycle benefits.
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 NCTR’s Best Workplaces for Commuters.
* Under Section 203 of the Administrative Taxpayer Relief Act of 2012, parity between the parking and transit/commuter highway vehicle benefits was reinstated at $240 per month and retroactively increased monthly transit benefit limit for 2012 from $125 per month to $240 per month. Subsequently, the IRS applied a cost of living adjustment to the $240 per month value. According to the IRS, “For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place). Details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013.” Source: http://www.irs.gov/uac/Newsroom/Annual-Inflation-Adjustments-for-2013
** Notice 2013-8 provides guidance for Section 203 of the Administrative Taxpayer Relief Act of 2012, which retroactively increased monthly transit benefit limit for 2012 from $125 per month to $240 per month. This notice provides a special correction procedure for employers who paid benefits in excess of $125 per month in 2012 and wish to make corrections on their fourth quarter Form 941. Notice 2013-8 will be published in Internal Revenue Bulletin 2013-7 on February 11, 2013.
Read over 30 Frequently Asked Questions, including questions about the bicycle commute option, in our National TDM and Telework Clearinghouse/Best Workplaces for Commuters‘ Support Center for more details about Commuter Tax Benefits.
The following summary was prepared to concisely but generally explain qualified transportation fringe benefits. However, there are exceptions (e.g., partners, 2% owners in S-corps) so you should check with your tax advisor to meet your particular circumstances.
*** tax free transit and vanpool benefit limit increased from $125 per month in 2012 to $240 per month beginning January 1, 2012 (the ACT made it retroactive for 2012 calendar year). For 2013, the amount was increased to $245.
**** tax free parking benefit limit increased from $230 in 2011 to $240 per month beginning January 1, 2012. For 2013, the amount was increased to $245.
Qualified bicycle commuting month.
.Reasonable expenses include: The purchase of a bicycle and Bicycle improvements,repair, and storage. These are considered reasonable expenses as long as the bicycle is regularly used for travel between the employee’s residence and place of employment.
- IRS Final Rule on Section 132(f) (pdf)
- Frequently Asked Questions
- Executive Order 13150 Federal Workforce Transportation
- VA Transit Benefit Program guidelines
- Bureau of Labor Statistics 2010 National Compensation Survey – Civilian Populationshows percent of workforce with subsidized commuting benefits
- US Dept of Agriculture Commute Transit Subsidy Benefit Directive