The IRS Finalizes Regulations On Qualified Transportation Fringe Benefits

The IRS has finalized proposed regulations pertaining to employer-provided transportation arrangements under Internal Revenue Code Section 132(f). For the most part, the final regulations adopted proposed qualified transportation regulations which were issued on January 27, 2000.

Code Section 132(f) provides that an employee can exclude qualified transportation fringe benefits from wages and employment taxes up to certain limits. Qualified transportation benefits include qualified parking expenses (up to $180 per month), transit passes (up to $65 per month), and transportation in commuter highway vehicles (up to $65 per month). Beginning January 1, 2002, the limits for transit passes and commuter highway vehicle expenses will be increased to $100 per month.

The value of transportation in a commuter highway vehicle, transit passes, and qualified parking is calculated on a monthly basis to determine whether the value of the benefit has exceeded the applicable statutory monthly limit on qualified transportation fringes. In the case of transportation in a commuter highway vehicle or qualified parking, the applicable statutory monthly limit applies to qualified transportation fringes used by the employee in a month. In the case of a transit pass, the applicable statutory monthly limit applies to the transit passes provided by the employer to the employee in a month for that month or for any previous month in the calendar year.

Because the finalized regulations are not extensive, they provide an excellent opportunity for employers to provide a useful benefit to employees with little expense or complexity. The final regulations were issued in a question and answer format and make the following clarifications:

1. Qualified Parking Expenses

Qualified parking is parking which is provided to an employee and is on or near the business premises of the employer, or at a location from which the employee commutes to work by carpool, commuter highway vehicle, mass transit facilities, transportation provided by any person in the business of transporting persons for compensation or hire, or by any other means if:

(1) The employer pays for the parking;

(2) The employer reimburses the employee for the parking expenses; or

(3) The parking is on property that the employer owns or leases.

The final regulations clarify what is considered qualified parking. Qualified parking does not include reimbursement for parking that otherwise is excludable from an employee's...

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