6/20/2008
Rising energy costs taking a toll on your employees? Wish you could effectively encourage employees to carpool? Employers can help relieve some of the burden of rising gas prices on the daily commute with a little help from the Internal Revenue Service.
Section 132(f) of the Internal Revenue Code allows an employer to provide for transportation or a reimbursement for carpooling and exclude these benefits from an employee's taxable wages, even if the benefits are offered in the place of pay. This is called a "Qualified Transportation Fringe Benefit." For 2008, employers can exclude up to $115 per month from an employee's taxable wages if used for a Qualified Transportation Fringe Benefit. However, in order to qualify, employers must comply with a few fairly strict and complex rules.
Qualified Transportation Fringe Benefits fall into three categories: (1) a ride in a commuter highway vehicle between the employee's home and work place; (2) a transit pass; and (3) qualified parking. We'll take a look at the first category: a ride in a commuter highway vehicle between the employee's home and workplace, what we commonly refer to as carpooling.
A "commuter highway vehicle" is any highway vehicle which seats at least 6 adults (not including the driver). Also, the employer must reasonably expect that at least 80% of the vehicle mileage will be for transporting employees between their homes and workplace with employees occupying at least one-half of the vehicle's seats (not including the driver's).
How does it work? Employers can exclude up to $115 per month from an employee's taxable wages, if the employee spends at least $115 per month on qualified transportation. Employers can also reimburse employees with cash for up to $115 per month spent on qualified transportation (but not cash advances). This amount is not included in an employee's taxable wages either. However, any amount provided over the $115 monthly maximum will be included in an employee's taxable wages.
Qualified transportation fringes may only be provided to individuals who are currently employees. Partners, 2% or greater shareholders of S corporations, and independent contractors do not qualify for transportation fringe benefits. Also, qualified transportation fringe benefit plans do not need to be in writing.
If you have any questions or you would like assistance in setting up a qualified transportation fringe benefit plan, you may speak with your WN&J contact or a member of the WN&J Tax Practice Group.
