Commuter Benefits and The American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Tax Act of 2009, signed into law on Feburary 17, 2009, provides a temporary increase to mass transit and van pool benefits that employers can provide to their employees.
From March 1, 2009 through the end of 2010, employers either can:
- fund certain employee commuting expenses themselves and get a corresponding tax deduction, or
- allow their employees to fund their own expenses tax-free, through a qualified transportation fringe benefits (QTFB) plan.
The new law amends Code Section 132 to equalize the allowed tax exclusion for the parking component of QTFBs and the transit category that includes both vanpools and mass transit passes. But the provision expires Jan. 1, 2011.
What Employers Need to Know
The effective date of the change is March 1, 2009. Employers, whether they sponsor a company-paid commuter benefit or a salary reduction arrangement under which employees pay for their own commuting expenses on a pre-tax basis, are not required to change their plans to make the two benefits equal.
Employers maintaining written plans and wishing to offer a new benefit limit to their employees to take advantage of the new law, should consider amending their plan documents in order to conform the plan language to the increased limits, and they should notify employees of the change. Although the IRS has not yet issued any guidance, employers are on solid footing if they increase the transit benefit from $120 to $230, to match the current parking limit; however, all QTFBs are optional and employers may also reduce the parking threshold to $120. Or, they may set the limits to any point below or at the maximum exclusion allowed.