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Commuter Services

Tax Reform’s Changes to Commuter Benefits

Disclaimer: CUTR and its employees do not provide tax, legal or accounting advice. The following information has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any qualified transportation fringe benefit program

 

The Tax Reform and Jobs Act of 2017 made several changes to qualified transportation fringe benefits (Section 132(f) of the Internal Revenue Code). This section allows employers to provide employee’s with discounts up to $260 per month for riding in a commuter highway vehicle that seats at least 6 adults (not including the driver) and carries riders that fill at least one-half of the seating capacity. The employer can also provide up to $260 per month for an employee’s transit pass or qualified parking.

 

The Act suspended the exclusion of qualified bicycle commuting reimbursements from employee’s income for any tax year beginning after December 31, 2017, and before January 1, 2026. Prior to this change, employers could reimburse up to $20 per month for commuting by bicycle on a regular basis.

 

Another change was the provision that no business deduction is allowed for qualified transportation benefits whether provided directly by the employer, through a bona fide reimbursement arrangement, or through a compensation reduction (pre-tax) agreement incurred or paid after December 31, 2017.

 

Also, no deduction is allowed for any expense incurred for providing any transportation, or any payment or reimbursement to employees, in connection with travel between the employee’s residence and place of employment, except as necessary for ensuring the safety of the employee.

 

If the business a chooses to treat these benefits as taxable wages, then organization is not required to pay tax on the qualified transportation fringe benefits. However, the organization will be subject to higher payroll taxes.  Employees will have increased personal income taxes if the employer treats the benefits as taxable wages.

 

While employers may no longer deduct payments for qualified transportation benefits, the fringe benefit exclusion rules still apply and the qualified transportation fringe benefit payments (e.g., transit, vanpool, and parking subsidies) may be excluded from the employee’s wages.

 

The Act also affected tax exempt organizations that offer qualified transportation fringe benefits.  Starting in 2018, if a non-profit organization wants to continue providing these qualified transportation fringe benefits tax‑free to employees, then the organization is required to treat the value of the benefits is potentially subject to unrelated business income tax.

 

Source: IRS Publication 15-B Employer’s Tax Guide to Fringe Benefits for use in 2018

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