New law increases transportation limits

Thanks to the new economic stimulus law (see front page), employees are eligible for bigger tax-free transportation benefits than they have received in the past, effective March 1, 2009. Here is a summary of the main fringe benefits for commuters.

Mass transit passes: Your company may provide transit passes to encourage employees

to use mass transit instead of commuting to work by car. It can either authorize reimbursements or pay the expenses directly. Under the new law, the maximum monthly amount that employees may receive tax-free is doubled from $115 for 2008 to $230.

(An inflation-adjusted maximum of $120 per month applies to the first two months of 2009.) This tax break extends through 2010.

Vanpooling: Employers may arrange to transport employees in a company-owned van or similar vehicle. The vehicle must seat at least six adults (not counting the driver) with at least 80% of the mileage attributable to transporting employees. Also, at least half of the seating capacity (not counting the driver) must be occupied during these trips. As with mass transit passes, the maximum monthly tax-free benefit is increased to $230 as of March 1, 2009, extended through 2010. But the combined tax-free benefits for mass transit passes and vanpooling cannot exceed the monthly limit.

Parking fees: An employer may designate parking spaces for employees on or near its business premises or a nearby location from where the employee can commute to work, such as a train station or bus terminal. But this does not include parking spaces at or near an employee's home. The previous monthly tax-free benefit for parking fees was already $230 for 2009, so there is no change in that amount. Note: Parking fees may be provided in addition to any benefits available for mass transit and vanpooling.

Bicycle commuting: For tax years beginning after 2008, your company can pay employees up to $20 per month tax-free for getting to and from work by bicycle. The payments may cover reasonable costs like bicycle purchases, other equipment purchases, repairs and storage. However, if an employee takes advantage of this tax break, he or she is not eligible to receive any of the other tax-free transportation benefits (e.g., mass transit passes).

Finally, be aware that the higher limits for transportation benefits after

February 28, 2009, may be adjusted for inflation for 2010. These adjustments are generally announced at the end of the preceding year.

The rules for commuting fringe benefits only apply on a federal income tax level. Other laws may be applicable for state income tax purposes.