The Bike Benefit: An “update”

October 9, 2009

Jeanine DeBacker

Fringe Benefits

Pay for the performance of services Taxable unless IRS has specifically

decided it is: – Nontaxable– Partially taxable – Tax deferred

If not addressed, must include value in recipient’s pay

Fringe Benefits

Non-taxable– Health Plan Contributions– De Minimis

Partially taxable – Transportation (up to dollar amount)

Tax deferred– Retirement plan contributions

IRC §132f - “QTF”

IRC §132f covers benefits an employer provides to his employees for the employee’s personal transportation

“Qualified Transportation Fringes” – Commuter Highway Vehicle– Transit Passes– Qualified Parking– Qualified Bicycle Commuting Expenses

IRC §132f - “QTF”

Employer-provided QTFs with Fair Market Values that do not exceed monthly dollar limits are: – Exempt from withholding and payment of

employment taxes – Not reported as taxable wages on W2– Not reported as gross income

(Only about employees - not former employees or contractors)

Substantiation

If employer reimbursing employees for QTF, employee must substantiate the amount

This means receipts!

QTF: Commuter Vehicle (Vanpool)

“Commuter highway vehicle” (not the family minivan).– Seating capacity of 6 passengers plus driver.

80% of mileage use can reasonably be expected to be for transportation/commuter purposes; and

At least 1/2 of the seats filled. $230 per month maximum Cash reimbursements by employer must be

substantiated with actual proof of commuter vehicle use by employee

QTF: Transit Passes

Pass, token, fare card, voucher, similar item entitling person to transportation on public or privately owned mass transit system.

$230 per month maximum If employer hands out the passes, no

substantiation necessary If not passing out transit passes, employer

can’t give cash reimbursement for passes unless no voucher or similar item is not readily available

QTF: Qualified Parking

Parking provided to employees on or near the business work premises, or parking on or near a location from which employees commute to work by commuter highway vehicle, mass transit station or vanpool.

$230 per month maximum.

QTF: Bicycle Expenses

Emergency Economic Stabilization Act of 2008 (October 3, 2008) (Bailout).

Expanding of qualified transportation fringe benefits (IRC §132(f)) to allow employers to reimburse employees up to $20.00 per month for bicycle commuting.

For each month bicycle is used for transportation between home and place of employment.

QTF: Bicycle Expenses

Employees may exclude reimbursements paid by employers for qualified bicycle commuting expenses.

$20 per month maximum (“$20 times the number of months the employee uses a bicycle for commuting to work”)

Cannot be claimed for any period in which the public transit passes or qualified parking benefit is claimed!

Bicycle Commuter Expenses

“Qualified Bicycle Commuting Month” is any month the employee:

– Regularly uses the bicycle for a substantial portion of the travel between the employee’s residence and place of employment; and

– Does not receive transportation in a commuter highway vehicle, or any transit pass or qualified parking benefits

Bicycle Commuter Expenses

Reimbursement may be for reasonable expenses incurred for the purchase of a bicycle, bicycle improvements, repair and storage.

Bike commuters who receive any other transportation fringe benefit under Section 132 are not eligible to receive the bike commuter benefit.

Bicycle Commuter Expenses

Bicycle benefit may not be funded by an employee’s pretax contributions; it is reimbursed.– “Bona fide reimbursement” process must be used

(Substantiation)– At least one company has “Bike Vouchers”– Time limits

Benefit not tied to cost of living index (will remain $20.00 per month).

QTF: Salary Reduction

Instead of employer giving the benefit as additional compensation, employer may simply permit employees to choose to defer a portion of income to purchase a QTF

Not include bicycle benefit

Pre-Tax Transit: IRC §132(f)

“Tax-Free Commuter Benefits.” Employer-provided voluntary benefit

programs that allow employees to reduce monthly commuting expenses for transit, vanpooling and work-related parking costs (and now bicycle benefit).

Monies used for the eligible expenses are excludable from gross income subject to federal (and state and local) taxes.

IRC §132(f)- Maximum Exclusions

$230 per month in pre-tax wages to purchase transit passes or vanpool rides.

$230 per month for qualified parking. Amounts may only be used to purchase

transit or parking.– Can’t use transit amounts for parking and vice

versa.– Can’t use untaxed income to purchase anything

else.

QTF: Bike Benefits - Status?

No change yet Seeking clarification (so that can use

bike benefit with public transit benefit) Not likely to increase $20/month

Thank you!

Jeanine DeBacker

www.wendel.com

JDeBacker@wendel.com