Transit/Parking

 

 

 

 

 

 

 

 

 

 

 

 

2020 contribution limit:

Transit/Vanpooling pre-tax monthly limit: $270

Qualified Parking pre-tax monthly limit: $270

The purpose of this pre-tax employee benefits account is to reimburse employees for eligible transit and parking expenses, up to the IRS statutory limit.

Since 1985, employers have been permitted to give the following transportation fringe benefits to employees on a tax-free basis:

  • qualified parking

  • transit passes

  • transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee’s residence and place of employment (also known as “van-pooling” like Uber or Lyft).

Under general principles of taxation, all fringe benefits provided to an employee by his or her employer (including transportation plans) are taxable to the employee unless the Code provides a specific exclusion for the benefit.  For most transportation fringe benefits, the maximum amount that employees can exclude from income is subject to a statutory limit that is periodically adjusted for inflation. 

 

Reg § 1.132-9.

(c) Substantiation requirements. Employers that make cash reimbursements must establish a bona fide reimbursement arrangement to establish that their employees have, in fact, incurred expenses for transportation in a commuter highway vehicle, transit passes, or qualified parking. For purposes of section 132(f), whether cash reimbursements are made under a bona fide reimbursement arrangement may vary depending on the facts and circumstances, including the method or methods of payment utilized within the mass transit system.

 

The employer must implement reasonable procedures to ensure that an amount equal to the reimbursement was incurred for transportation in a commuter highway vehicle, transit passes, or qualified parking. The expense must be substantiated within a reasonable period of time. An expense substantiated to the payor within 180 days after it has been paid will be treated as having been substantiated within a reasonable period of time. An employee certification at the time of reimbursement in either written or electronic form may be a reasonable reimbursement procedure depending on the facts and circumstances. Examples of reasonable reimbursement procedures are set forth in paragraph (d) of this Q/A-16.

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