A column on personal finance prepared by the Virginia Society of Certified Public Accountants
GET MORE FROM YOUR JOB WITH THESE QUALIFIED TRANSPORTATION FRINGE BENEFITS
(March 18, 2004) – The cost of commuting to and from your regular place of work is never a deductible expense. However, employees who work for companies that provide qualified transportation benefits can reduce their commuting costs, reports the Virginia Society of CPAs. This benefit, which is available under the Transportation Equity Act for the 21st Century, permits employees to set aside pre-tax income to pay for qualified transportation expenses.
How Transportation Benefits Work
The transportation benefit is similar to the pre-tax flexible spending accounts available for medical expenses and for dependent care. Before the start of the plan year, an eligible employee agrees to set aside a certain amount of pre-tax salary to pay for the value of employer-provided transit passes or van pools. Then, each month, the benefits may be provided through a salary reduction arrangement. Since the deductions are taken on a pre-tax basis, you save money because you are not paying income or Social Security taxes on these wages.
The exclusion for these types of benefits also applies if an employer reimburses an employee’s expenses for mass transit expense or qualified parking. Note that only employers can provide transportation benefits to employees. Sole proprietors, partners, and independent contractors are generally not eligible for this benefit.
Three Categories of Qualified Transportation Expenses
Eligible transportation expenses include amounts paid for mass transit, commuter highway vehicles used for vanpooling, and parking. Mass transit expenses include the cost of tokens, fare cards, vouchers, and other items that entitle an employee to use trains, buses, subways, and ferries.
According to the IRS, to qualify as a commuter highway vehicle, a vehicle must have a seating capacity for at least six passengers and at least 80 percent of its annual mileage must account for transporting employees to and from their place of work.
Qualified parking refers to parking in a facility that is near the employee’s place of work. It can also mean parking provided at or near a location from which the employee commutes to work by mass transit, a vanpool or carpool, or any other means. Parking at or near the employee’s home is not a qualified parking expense nor is the cost of parking associated with traveling to a business meeting or client visit.
Accounts for mass transit and parking must be kept separately. Funds designated for mass transit cannot be used for parking, and you cannot transfer money between the two accounts.
Maximum Contribution Limits Adjusted for 2004
For 2004, the maximum monthly pre-tax contribution is $100 per month for mass transit expenses and for commuter highway vehicles. An employee may also set aside, in a separate account, up to $195 for parking expenses.
Employees may qualify for a parking benefit in addition to the mass transit or commuter highway vehicle benefit. For example, if you pay to park in a lot from which you commute to work on mass transit, you can use the qualified transportation benefit to subsidize both your parking and mass transit costs. In such cases, you could realize a maximum total monthly benefit of $295.
Employers Benefit as Well
Employers who offer qualified transportation benefits save on payroll taxes and support efforts to reduce congestion and decrease air pollution. If you’re an employer interested in offering this benefit to your employees, a CPA can provide direction.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
Lifetime Financial Planning, Inc.
Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional
2325 Dulles Corner Boulevard, Suite 500, Herndon, Virginia, 20171
208 South King Street, Suite 201, Leesburg, Virginia, firstname.lastname@example.org
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