- qualified parking
- transit passes (e.g., bus fare)
- transportation in a commuter highway vehicle (vanpool)
Qualified parking means employee parking on or near the employer.s business premises or in a commuter lot. Transit expenses include the cost of commuting by bus, train, subway, ferry and vanpool, but not carpools or a spouse.s transit costs. A commuter highway (vanpool) vehicle must seat at least 6 adults excluding the driver, and 80% of the vehicle.s mileage must be to transport employees between work and home.
To participate, employees must elect in advance to reduce earnings to pay transportation expenses for a specific period of time (e.g., a month). The election must be in writing or some other permanent verifiable form (including electronic form). Once the specified period begins, the election cannot be changed but, unlike a cafeteria plan, there is no .use it or lose it. rule. Amounts not spent during the specified period may be carried over to a subsequent period, but they must eventually be used for qualified transportation expenses and cannot be paid out in cash or used for other purposes.
Employers must establish a reimbursement system to verify the expenses and ensure that the monthly limits have not been exceeded. Substantiation requirements do not appear to be onerous. Workers seeking reimbursement for qualified parking costs can provide parking receipts. If receipts are not available (e.g., a parking meter), written certification that the parking cost has been incurred will suffice, so long as the employer has no reason to doubt the certification. A potential disincentive to the transit benefit is that employers must distribute transit pass vouchers (or a similar item that can only be exchanged for a transit pass) rather than reimburse employees in cash if vouchers are readily available. A voucher is .readily available. unless the employer can show that distributing vouchers rather than cash reimbursement would involve .significant administrative cost. as defined in the regulations.
There are no annual 5500 or other government reporting or disclosure rules and no formal plan document requirement. Companies should, nevertheless, have a written document outlining plan rules and procedures that are consistent with the new regulations.
The proposed regulations do not answer all the questions. For example, they do not address the impact of compensation reductions on qualified retirement plans. This means it is still unclear whether such amounts should continue to be included in compensation for Code ' 415 purposes. In addition, employers who offer this benefit may want to look at the definition of compensation in their various compensation-based employee benefit plans (retirement, life insurance, disability, etc.). Suppose a company has a profit-sharing plan to which it contributes 5% of pay for eligible employees. If a worker.s gross pay is $30,000 but she has it reduced by $2000 for transportation expenses, does the employer contribute 5% of $30,000 or 5% of $28,000? If reducing an employees.s pay for transportation benefits reduces other benefits, employees should be advised.
In summary, while transportation benefits involve some administrative burden, for companies whose employees have parking or commuting expenses, the payroll tax savings for employers and increased take-home pay for employees can be significant. In the current tight labor market where companies are doing all they can to recruit and retain valuable employees, this pre-tax benefit may be a natural.