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.