February 18, 2009

Stimulus Law Includes a Temporary Increase in the Income-Tax Exclusion for Transportation Benefits

The American Recovery and Reinvestment Act of 2009, signed by President Obama on February 17, 2009,1 includes a temporary increase in the income-tax exclusion for transportation benefits. This provision of the law is intended to help employees with their commuter expenses.

Background

Qualified transportation benefits, including transit passes, parking, vanpooling and bicycling expenses, can be excluded from income under Section 132 of the Internal Revenue Code. Transit, parking and vanpooling expenses are subject to a maximum exclusion, which is indexed annually. For tax years beginning on January 1 2009, the maximum exclusion for qualified parking expenses was $230 per month, and $120 per month for mass transit and vanpooling (combined).2

Transportation Benefits Affected

The temporary income-tax exclusion bill affects transit passes and expenses associated with vanpooling in 2009 by increasing the $120 per month maximum exclusion for such items to equal the $230 per month exclusion for parking. In 2010, the dollar amounts for each benefit may increase, depending on any inflation adjustment. The increase in the exclusion does not affect the qualified bicycle commuting reimbursement.3

Effective and Termination Dates

The temporary increase in the income-tax exclusion for transit passes and vanpooling will take effect starting March 1, 2009. It is scheduled to terminate for months beginning after December 31, 2010.

Actions for Employers

Employers should review this change with their payroll provider or other service provider that administers employee elections and reimbursements. Employees should be informed about the new amounts and employers should be prepared to offer additional transit vouchers and reimbursements because of the change. Employers that provide transit passes on a multi-month basis will need to review the amount provided and determine whether to change it or modify the pass distribution schedule.

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Plan sponsors should rely on their attorneys for authoritative advice on the interpretation and application of the American Recovery and Reinvestment Act of 2009. The Segal Company can be retained for assistance with temporary changes to transportation benefits.

1
When the law is available online, it will be accessible from the following page of the Government Printing Office Web site: http://www.gpoaccess.gov/plaws/111publ.html. (Click on the following text to return to the Compliance Alert.)
2
For more information, see Employer's Tax Guide to Fringe Benefits on the IRS Web site. (Click on the following text to return to the Compliance Alert.)
3
For information on this relatively new transportation benefit, see The Segal Company's October 27, 2008 Compliance Alert, "New Transit Benefit for Bicyclists." (Click on the following text to return to the Compliance Alert.)

Compliance Alert, The Segal Company's periodic electronic newsletter summarizing important developments affecting benefit plan compliance, is for informational purposes only. It is not intended to provide authoritative guidance. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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