Transportation Spending Account

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Bicycle Expenses[edit]

"Beginning in 2009, employers may reimburse bicycle commuters up to $20 per month tax free for each month a bicycle is used for transportation between the employee's home and place of employment. 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. The bicycle commuter benefit was added to IRS Code 132(f) as part of the Emergency Economic Stabilization Act of 2008, signed into law on October 3, 2008."

"The bicycle benefit may not be funded by an employee’s pretax contributions; instead, it is reimbursed by an employer as a fringe benefit. Because this is a reimbursement, a “bona fide reimbursement” process must be utilized by the employer whereby the employee substantiates the expenses with receipts, or a certification in the absence of receipts, that the expenses were incurred for the eligible purpose."

Qualified Transportation Fringe Benefits Summary Table

"Employers can allow employees to use pretax dollars to pay for transit passes, vanpool fares and parking but not for bicycle benefits."

"According to the IRS, “Generally, you can exclude qualified transportation fringe benefits from an employee’s wages even if you provide them in place of pay. However, qualified bicycle commuting reimbursements do not qualify for this exclusion."

"The purchase of a bicycle and Bicycle improvements,repair, and storage. These are considered reasonable expenses as long as the bicycle is regularly used for travel between the employee’s residence and place of employment."

Bicycle commuting tax benefits

Punchline: $20 in reimbursements! "What are the limits on the value of qualified transportation fringes that maybe excluded from an employee’s gross income? Bicycle Commuting. $20 per qualified bicycle commuting month. (Note from the Help Desk: This benefit was added in 2009)"

What is compensation reduction?

"May qualified transportation fringes be provided to employees pursuant to a compensation reduction agreement? Yes. An employer may offer employees a choice between cash compensation and any qualified transportation fringe."

Employer's Tax Guide to Fringe Benefits Transportation (Commuting) Benefits @

"Generally, you can exclude qualified transportation fringe benefits from an employee's wages even if you provide them in place of pay. However, qualified bicycle commuting reimbursements cannot be excluded if the reimbursements are provided in place of pay."

Exclusion from wages. You can generally exclude the value of transportation benefits that you provide to an employee during 2014 from the employee's wages up to the following limits.

"For a calendar year, $20 multiplied by the number of qualified bicycle commuting months during that year for qualified bicycle commuting reimbursement of expenses incurred during the year."

Does the Federal Tax Code Favor Driving Over Other Modes?

"While we’re sustainable transportation advocates, not tax lawyers or accountants and information in this post does not constitute tax or legal advice, we did find that the federal tax code provides benefits to vehicle owners but offers limited incentives for taxpayers to take transit or bike." Transit & Parking Benefits

"Employees are allowed to set aside pre-tax compensation in two categories - transit and parking. In the transit category, qualified commuter expenses generally include expenses for the use of mass transportation - train, subway, bus, transportation in a commuter highway vehicle, transit passes, and qualified bicycle reimbursement.

Transit and parking benefits are governed by IRS Code Section 132. The transit and parking benefit does not include a "use it or lose it" penalty, as is the case with Healthcare FSAs and Dependent Care FSAs. Federal income tax and FICA taxes are not imposed on amounts set aside. Depending on state law, employees may also avoid state and local income taxes.

Employers also get tax benefits because they pay no payroll taxes on the income set aside by the employee and receive an equivalent deduction from business income.

Before the start of the plan year, individual employees elect to set aside a certain amount of pre-tax salary to cover qualified costs incurred in commuting to work. The employee designates an amount for mass transit expenses and a separate amount for parking expenses. Separate reimbursement accounts are maintained for each category and funds cannot be commingled or transferred between accounts. As the employee incurs expenses during the year, a request form may be submitted to the employer for reimbursement. If the employee does not use the full amount before the end of the plan year, the left over amount is carried forward to the next plan year.

Transit and parking maximum contributions are set by the IRS and are generally adjusted annually for inflation. The current limits are $130 monthly for transit and $250 monthly for parking. The bicycle commuting limit is $20 monthly." Bike Commuters Get Flexible Spending Account Bicycle Commuters Qualify for $20.00 per Month Fort Collins, Colorado—The Emergency Economic Stabilization Act of 2008 : H.R. 1424 (bailout) bill signed into law by President Bush includes expanding qualified transportation fringe benefits (Section 132(f) ) to allow up to $20.00 per month for bicycle commuters.

The bicycle benefit takes effect in January 2009 for reasonable expenses incurred by the employee during the calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage. Employees that bicycle regularly for travel between the employee's residence and place of employment may contribute $20 multiplied by the number of qualified bicycle commuting months during such year.

If the employee elects to contribute to the bicycle benefit, they will not be eligible to contribute to the transit or commuter highway vehicle benefit. You can find the full bill (HR 1424) at See IRS' Taxable Fringe Benefit Guide For more information about Qualified Transportation Fringe Benefits (Section 132(f)).