Qualified Transportation Fringe Benefits

Generally when an employer pays the personal expenses of an employee, the recipient must include the amount paid in his or her taxable income. However, a number of exceptions exist under the Internal Revenue Code.

Commuting costs are considered a personal expense, and are not deductible on an individual’s tax return. The tax law though allows the employer to aid the employee with his or her commuting costs by providing certain tax free benefits.

The following employee payments known as qualified transportation fringe benefits will thus be tax free to the employee:

1) Payments toward the cost of van pools for employees in a commuter highway vehicle, which has a seating capacity of at least six adults and on which at least 80% of the mileage is due to commuting trips in which the van is at least half full.

2) Qualified parking at the employer’s place of business or at a spot from which the employee takes public transportation for the balance of his commute.

3) Transit passes for use on a mass transit facility.

4) Qualified bicycle commuting reimbursements for up to $20 a month for the purchase, improvement, repair or storage of a bicycle regularly used by the employee in his or her commute.

One might note that while these reimbursements are excluded for taxes, they are included as income in the means test under the bankruptcy law to determine if an individual qualifies for a Chapter 7 Bankruptcy.

Simplified Retirement Plans For Small Businesses

     The Internal Revenue Code encourages people to plan for their retirement by providing tax incentives for both employers and employees to establish and participate in qualified pension and profit sharing plans. The rules are rather complex however and can be quite challenging for a small business such as a divorce lawyer
with only a few employees and no human resource professionals on staff.

     Congress recognized the reality of this obstacle though, and the law allows small businesses to drop some of the formal requirements for a plan by setting up either a Simple Employee Pension also known as a "SEP" or a Simple Retirement Plan.

     In a Simple Retirement Plan the employees, who elect to participate, can contribute toward the pension plan with the employer making additional contributions for the employees’ benefit. The employers contribution can be either a matching contribution of up to 3% of the employee’s compensation, or 2% of the compensation of every employee eligible to participate in the plan whether he or she elects to make contributions or not.


     Under a SEP on the other hand the contributions are made by the employer.

     Either a Simple Retirement Plan or a SEP may be funded by the purchase of an IRA.

Use of Spousal IRAS

The general rule is that you may only contribute to an individual retirement account, if you have earned income from either a job or from self employment. However, there is an exception for a now working taxpayer who files a joint tax return with a working spouse. In this situation both the employed and the unemployed taxpayer may take the IRA deduction.

The maximum deduction for an IRA contribution in 2011 is $5,000 per taxpayer, with an additional $1,000 available if the taxpayer is over age 50. No deduction is available for taxpayers over the age of 70 ½. Thus in the case of married taxpayers where only the husband or the wife works a total of $10,000 is available as an IRA deduction ($12,000 if both spouses are over the age of 50).

As an estate planning attorney I often see cases, where this presents a great planning opportunity, if one spouse is retired and the other continues to work. Since either the husband or wife is still working, a $12.000 deduction is available, and if one of them can afford to retire before the age of 70 ½ they often have some savings that could painlessly be transferred to an IRA.