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Disparity grew between allowable transit and parking benefits
last updated 12/17/2014
Transit Benefit Update:
Congress Retroactively Increases Transit Benefit Limit for 2014
On Dec. 16, 2014, the Senate passed
H.R. 5771, the Tax Increase Prevention Act of 2014, a bill that retroactively extends 55 provisions in the tax code. The bill had been passed by the House on Dec. 3, and was sent to the White House for an expected presidential signature.
H.R. 5771 would extend retroactively for one year (generally through the end of 2014) a number of tax relief provisions that expired either at the end of calendar year 2013 or during 2014, thus preventing tax increases when the tax year 2014 filing season begins early in 2015.
Retroactive for 2014, the measure reinstates the maximum monthly exclusion amount for transit passes and van pool benefits (raising it from $130 to $250) so that these transportation benefits match the $250 exclusion for qualified parking benefits. But for 2015, the transit limit returns to $130—unless Congress acts again to raise it.
For more on this topic, see the
SHRM Online article
Congress Retroactively Increases Transit Benefit Limit for 2014; Passes Other ‘Tax Extenders.’)
Guidance on Transit Benefits Provided via Electronic Media
An IRS ruling released in November 2014,
Revenue Ruling 2014-32, provides updated guidance on the use of electronic media (such as smartcards and debit cards) to distribute nontaxable transit benefits under section 132 of the tax code. This ruling modifies and supersedes a 2006 ruling on this subject, which many recent technological developments had rendered obsolete.
Employers making cash reimbursements where terminal-restricted debit cards are readily available must prepare to eliminate those reimbursements after 2015.
More Employers Required to Offer Commuter Benefits.
Public transportation advocates have been pressing localities to mandate that employers offer it, according to an October 2014 article posted
The New York City Council passed such a law, effective Jan. 1, 2016, under which employers in the city with 20 or more full-time employees will have to offer commuter benefits to their workers. San Francisco has had a transit benefit ordinance in place since 2009, but as of October 2014 employers with 50 or more employees in nine Bay counties also are required to offer a transit benefit plan for their employees.
The maximum allowed
pretax mass-transit benefit for employees fell from $245 per month in 2013 to $130 in 2014, beginning Jan. 1. It will
remain at that level in 2015 unless Congress acts to change it.
Employees can deduct commuting costs from their paychecks, tax free, through an employer benefit program up to the allowable monthly limit. Similarly, organizations that subsidize their employees' commuting costs may do so up to the allowable limit, which results in lower payroll taxes than if they paid the money in wages.
A year earlier the American Taxpayer Relief Act temporarily raised the transit-benefit statutory limit to $245 per month. This new amount was not permanent and expired at the end of 2013.
By contrast, the monthly
pretax parking benefit that employers can provide to drivers rose from $245
to $250 on Jan. 1, 2014. It will remain at that level in 2015 as well, the
IRS announced in Revenue Procedure 2014-61 (October 2014).
"For employees who rely on or choose mass transit for their commutes, the decrease in the cap from $245 to $130 per month is the largest disparity we have ever seen between the transit and parking components of the pretax commuter benefit," Natasha Rankin, executive director of the Employers Council on Flexible Compensation, told
SHRM Online. "Our long-term goal is to encourage that any tax legislation establishes permanent parity between the parking and transit portions of the commuter benefit."
"It's a shame congress didn't act on this before year end given the bipartisan support commuter benefits have received in recent years," added Dan Neuburger, president of WageWorks Commuter Services, a benefits administrator. "Millions of middle class Americans and their employers will see a tax increase in January. People need to tell their congressional representatives that this must be addressed in early 2014 as it is difficult to administer this benefit retroactively."
Mass-Transit and Parking Benefits: Pretax Dollar Limits
Mass-transit (commuter) benefits
Source: Internal Revenue Service
"If an employee had been getting the full cost of his or her transit expenses paid for by the employer up to the old $245 cap, and if the employer decides to decrease the maximum benefit to the tax-free maximum of $130, then it could mean a lot of money out of a worker’s pocket," noted Stephen Crim, research director at Mobility Lab, a research-and-development initiative of Arlington County Commuter Services in Virginia.
"Of course, employers could elect to keep paying the full cost of an employee’s transit costs, even without the payroll-tax benefit," Crim added.
IRS Information Letter 2014-0028, issued on Aug. 1, 2014, addresses rules that apply when qualified transportation plans offer vanpooling benefits. Typically, employee-owned vehicles used for carpooling do not qualify as commuter highway vehicles because of the seating capacity and 80/50 rules, which state:
A commuter highway vehicle must seat six or more adults not including the driver.
At least 80 percent of the mileage use can reasonably be expected to be for transporting employees between their residences and places of employment.
On these trips the number of employees being transported is at least 50 percent of the vehicle’s adult seating capacity not including the driver.
However, qualified parking benefits may be available when these vehicles are used for commuting to work.
Special Per Diem Rates for Travel Begin in October 2014
IRS Notice 2014-57 provides the 2014-2015 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home, specifically (1) the special transportation industry meal and incidental expenses (M&IE) rates, (2) the rate for the incidental expenses only deduction, and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method.
Beginning Oct. 1, 2014, the high-low per diem rates that can be used for lodging, meals and incidental expenses will increase to $259 for travel to high-cost locations and $172 for travel to other locations. The high-low M&IE rates will remain at $65 for travel to high-cost locations and $52 for travel to other locations.
The notice was issued on Sept. 19, 2014.
Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter
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