Tax Advantages and the Law

2014 IRS limits for Qualified Transportation Fringe
"Qualified Transportation Fringe Benefit. For taxable years beginning in 2014, the monthly limitation under 132(f)(2)(A), regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass, is $130. The monthly limitation under 132(f)(2)(B), regarding the fringe benefit exclusion amount for qualified parking, is $250". http://www.irs.gov/pub/irs-drop/rp-13-35.pdf (see page 14)

IRS Procedures for Retroactive Commuter Tax Benefit Released

The recently passed fiscal cliff bill included restoration of the commuter tax benefits. This raised benefits from $125 per month to parity with the parking benefit. The IRS has issued instructions for employers and employees to take advantage of the retroactivity feature through a “special administrative procedure.”

American Taxpayer Relief Act of 2012 (CY2013 Transit to $240) PDF

Please inform your employees about these changes to ensure proper adjustments are made within their Passenger Allocation account.

SmartBenefitsSM is a better alternative. Read the Washington Post article, "GAO Finds Fraud in Commuter Program."

Tax laws

  • Internal Revenue Bulletin: 2006-47
  • Rev. Rul. 2006-57 November 20, 2006
  • Qualified transportation fringes; smartcards and debit cards. This ruling provides guidance to employers on the use of smartcards and debit cards to provide transportation fringes under section 132(f) of the Code. Read More http://www.irs.gov/irb/2006-47_IRB/ar05.html

Tax advantages

In June 1998, the Transportation Equity Act for the 21st Century (TEA 21) was signed into law. TEA 21 includes a provision amending the Internal Revenue Code (26 U.S.C. Section 132(f)). This amendment to the tax code allows employers to offer their employees public transportation benefits in addition to salary or wages, or allow the employee to elect to receive SmartBenefitsSM as a pre-tax payroll deduction, or some combination of the two.

1.132-9 Qualified Transportation Fringes. Questions and Answers.

Federal legislation prohibits cash or paycheck reimbursements when voucher programs are available.

Under federal tax laws, SmartBenefitsSM are available four ways. Many employers reap a 2-to-1 benefit. (Specific tax rules may vary according to state and type of enterprise.)

  • Direct employer-paid benefit: Give an employee a direct benefit of up to $245 maximum per month ($2,940 per year). It's tax-free to the employee, and if you're a private sector employer, you can probably write off the cost of providing SmartBenefitsSM as an ordinary expense.
  • Pre-tax salary deduction: By establishing a SmartBenefitsSM deduction program, employees can pay with pre-tax dollars through payroll deduction. The money withheld is completely exempt from state and local taxes. For each employee who receives the maximum of $2,940 per year, the savings is around $224.91 per year in FICA and unemployment insurance.
  • Combination: The employer provides part of the $245 benefit and allows employees the option to pay the balance from pre-tax income. The employer simply buys SmartBenefitsSM using the combined amount. Employees still save on payroll taxes
  • As an incentive: Offer it as part of a salary increase, bonus, award or incentive. No matter how you offer it, SmartBenefitsSM is a powerful tool for helping employers recruit, retain, and motivate employees.

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