Free Wheeling: Employers and Employees Benefit from Tax-Favored Fringe Benefits

Free Wheeling.BLOGThis Christmas, Tom unpacked a brand new bicycle that was wedged behind the tree. “I’m riding to work on this bicycle every day this year,” he resolves for his health.

Kathy, on the other hand, finally caved under the pressure of constant advertisements between holiday T.V. specials and bought that sleek new German sports car, availing herself of low interest rates and finally answering the question, “Who buys someone a car for Christmas?”

Tom and Kathy keep excellent smartphone calendars and were notified to attend an 8:30 a.m. meeting on January 4, 2016. Tom starts to think, “Monday should be a nice day, and I want to ride my bike, but what about my parking pass?”

Kathy wonders, “I can’t wait to drive to work and show everyone my new car, but how will I pay for parking? Maybe I should just keep using my bus pass.”

If you are eager to implement some new “fringe benefits” for your workforce, you can help Tom and Kathy solve their problems – and save some money for your organization too. 

Section 132(f) of the Internal Revenue Code provides for certain tax-favored treatment when an employer, under certain conditions, provides reimbursements, vouchers, or other benefits related to transit, parking, or bicycle commuting. The value of these benefits can total $380 per month under current regulations, which is money that the employer can save on payroll taxes and the employee can deduct from taxable income.

Before you proceed, please take heed that knowledge is power, and the knowledge provided here is solely for purposes of awareness. Any implementation of a program utilizing these so-called “fringe benefits” should occur only with the involvement of a qualified tax professional. 

Having noted the necessity of consulting with a tax-knowledgeable advisor prior to implementation, you may note another important item. An employer can extend, and an employee can receive, both the transit and parking benefits, but receipt of either one will exclude the employee from receiving the bicycle commuting benefit. 

The transit benefit is set at a maximum of $130 monthly, and the parking benefit is $250 monthly. The benefit can be paid in one of two ways. By the first method, the employer simply provides the employee with the benefit and then takes a deduction for it. The employee does not need to pay taxes on the amounts, up to the stated maximums. Under the second method, the employer allows the employee to pay for the transit (e.g. transit passes or van pool) or parking benefit using pre-tax dollars, and thereby also saves on payroll taxes for this amount. It is also possible to combine the two methods.   

There are, of course, important exclusions. When a transit voucher, such as a transportation district’s eco-pass, is “readily available” for distribution from the employer to the employee, then the voucher must be given instead of the transit monetary benefit. Parking must be on or near the employer’s premises and cannot be in a lot used by the employee for residential parking. Commuter highway vehicles (i.e. the “van pool” portion of the benefit) are defined by occupancy. And certain owners or stakeholders of the employer may be excluded from the benefit. 

With Kathy’s gleaming Bavarian beauty now parked across the street, and in a spot that provides an excellent view from the break room, Tom wonders whether he should return his bicycle and get in on the van pool that’s so popular with the IT staff. 

Don’t fret, Tom. The bicycle commuting benefit, for those who aren’t taking advantage of parking and high-occupancy transit, provides reimbursements of up to $20 monthly for any employee who “regularly uses a bicycle for a substantial portion of the travel between the employee’s residence and place of employment.” These reimbursements are intended to cover items such as the cost of the bicycle and repair or maintenance. Tom may not have a showy, shiny new automobile on display, but now he’s in better shape, healthier than ever, saving on gas, and eco-conscious. 

Tom and Kathy arrive satisfied for their 8:30 a.m. meeting on the first working Monday of 2016, with their checkbooks a little more full. Accounting carries over its holiday cheer into January with the newly unwrapped deductions. Kathy’s car does look good in that spot.