Tax-Reducing Vanpool/Transit Benefits
Section 132 (f) of the Internal Revenue Code
The federal tax code allows employers to offer tax-free benefits for the purposes of taking transit, vanpooling, and paying for parking. These “Qualified Transportation Fringe Benefits” are deducted from corporate gross income for taxes paid by the employer. Both employers and employees save on taxes because neither pays federal income or payroll taxes on these benefits.
What are the benefits?
You may also offer your employees $20 per month for reasonable expenses associated with bicycling to work. Unlike other qualified transportation benefits, bicycle commuting reimbursements cannot be funded through employee pretax income.
There are several ways to implement a program:
The employer pays the full benefit and gets the payroll tax reduction and business expense.
The employer sets up the program and allows employees to put away pre-tax income for the vanpool or transit expense, saving them taxes.
Employer/Employee Cost Sharing
The employee receives a tax-free subsidy for part of his/her commuting expense and the employer’s federal payroll taxes are reduced on the amount of the subsidy.
A Few Definitions
The IRS has specific guidelines, including the requirement that transportation must take place in a commuter highway vehicle, be provided in the form of transit passes, or be provided for parking that meets the definitions of the law. This law does not apply to carpooling, bicycling, walking, or telecommuting.
A Commercial Highway Vehicle or Vanpool is defined as:
A Transit Pass is defined as:
Qualified Parking is defined as:
How does the Benefit Work?
What is the Necessary Record Keeping?
In order to prove documentation for the program, it is recommended that employer maintain the following:
Working with third party vendors makes it easier to keep records and document program usage. Some of the vendors in your area include:
Where Can I find the IRS Code?
Found at 26 USC section 132 (f) and is available online at uscode.house.gov/search/criteria.shtml