Preface: Internal Revenue Codes provide certain fringe benefit opportunities for employees for transportation expenses. These fringes nontaxable perks includes costs for bicycles and van pools. This blog is to provide employers with an awareness of employee perks for costs incurred on travel from personal residence to work location.

 

Qualified Employee Transportation Fringes

Typically commuting costs for work are personal nondeductible costs for most employees; yet in certain circumstances, fringe benefits are available to employees for these incurred expenses. Qualified transportation fringes encompass i) transportation in a commuter highway vehicle, ii) transit passes iii) qualified parking. In this blog we will look at pricing on bicycles and van pooling and those tax pertinent features available to qualifying employees.

For qualifying employees who own bicycles and ride them for personal commuting mileage from home residence to a place of employment, the IRS permits a fringe benefit excluded from wages of $20 per qualified commuting month. A qualified commuting month is one that i) the employee uses a bicycle for a substantial number of days to travel between a personal residence and place of employment and ii) doesn’t receive transportation in a commuter highway vehicle, or transit passes and qualified parking benefits. Qualified bicycle payments can’t be excluded from wages if they are provided in place of pay. Therefore if your business elects to provide fringe transportation benefits, employees can be compensated for costs to purchase and maintain a bicycle and accoutrements of $20 per month.

Employer and employee-operated van pools, as well as private or public transit van pools may qualify as qualified transportation fringes too for employees. The value of van pool benefits that are qualified can be excluded from wages up to certain thresholds. Employer operated van pools that provide transportation to employees in a qualified commuter vehicle, i.e. vehicle seats at least seven passengers, including the driver, is a permissible fringe benefit to employees. The employer purchase or leases the van to provide a common commute together for employees. The employer may also contract with a third party to provide the vans and pay some or all the costs of operating the vans, including vehicle maintenance, liability insurance, and fuel expenses.

Employee-operated van pools provide employers the opportunity to pay cash reimbursements to employees for expenses incurred in a van pool operated by the employees independently of their employer. These reimbursements are qualified transportation fringes excludable from wages provided that the van qualifies as a commuter highway vehicle defined by the Internal Revenue Code, i.e. seats at least seven passengers including the driver.

Private transit operated van pools are also qualifying transportation fringe benefit in certain circumstances too, given that the van seats at least six adults excluding the driver, and the person is in the business of transporting person for compensation of hire, i.e. appropriate business and taxi registrations.

The fringe balance is $255 per month for transportation in a commuter highway vehicle. If the fringe benefit exceeds $255 the cost is taxable to the employee as wages.

If your business is contemplating a qualified employee transportation fringe, talk with your CPA before implementing the fringe for specific tax rules applying to your business to ensure compliance with Internal Revenue Codes. This blog is not written for specific tax advice but awareness of benefits for your employees. Commuting expenses in a personal vehicle are not deducted.