Many employers sponsor a qualified transportation benefit plan (QTB) offering tax advantages for their workers' parking and mass transit/vanpooling expenses.  Federal tax law sets monthly limits on the maximum expenses allowed for pretax reimbursement.  Commuters would have seen their monthly limit for transit expenses cut by almost half next year.  However, the new Tax Relief Act, signed by President Obama last Friday afternoon, ensures that the current monthly limits remain in place through 2011:
 
• $230 for parking expenses
• $230 for transit/vanpooling expenses

Qualified Transportation Benefits
 
A qualified transportation benefit plan (QTB) under IRC Section 132 allows employees to use pretax funds to pay work-related transportation expenses.  Employee and/or employer pretax contributions are directed to QTB accounts and then used for eligible expenses.  There are two types of accounts.  A transit account reimburses expenses for mass transit (bus, metro, subway, train, etc.) and vanpools.  (Vans, also called "highway commuter vehicles" must meet criteria regarding the number of seats and passengers and the percentage of mileage used for commuting.)  A parking account reimburses expenses for certain parking expenses, such as parking at the workplace, transit stations or vanpool pick-up sites.  Employees may participate in one or both accounts.  Benefits are excluded from federal income and payroll taxes, and most state taxes, up to the monthly limits.  The current monthly limits -- $230 each for parking and mass transit/vanpooling - have been in place since March 2009 and will continue through 2011.
 
Bicycle Commuter Benefit:
 
Employers may provide a tax-free benefit up to $20 a month to reimburse employees for commuter bicycle expenses (expenses to buy, rent, repair or store a bicycle used for commuting).  Employees receiving any other qualified transportation benefits cannot receive the commuter bicycle benefit in the same month.  No changes in the bicycle commuter benefit are planned for 2011.
 
San Francisco Commuter Benefits Ordinance
 
Companies with 20 or more employees are subject to San Francisco's Commuter Benefits Ordinance with respect to any employee that works in San Francisco an average of 10 or more hours per week.  The Ordinance requires employers to offer commuter tax benefits through one of the following:
 
•         Qualified Transportation Benefits (i.e., Section 132 plan as described above)
•         Employer-Paid Transit Benefits (e.g., BART tickets and Muni passes)
•         Employer-Provided Transit (e.g., company-owned buses or vans)
 
San Francisco employers that comply with the Ordinance by means of a Section 132 QTB plan must offer the monthly limits set by federal law.
 
Action Steps:
 
Employers sponsoring pretax parking and transit benefit plans should take the following steps immediately:
 
1. Coordinate with your third party administrator (TPA) regarding administrative and systems changes needed to continue the current monthly limit for mass transit/vanpooling benefits.  In many cases, plan participants have already elected benefits and received transit passes for January 2011 based on the reduced $120 transit limit that would have applied in absence of the new Tax Relief Act.
2. Update the plan document and other plan materials as needed.
3. Notify eligible employees regarding all benefit limits taking effect January 1, 2011.
 
If you have any questions, please contact PSW Benefit Resources at 877.866.2623 with questions.
 
Note regarding Transit Plans using Smartcards and Debit Cards
 
The IRS has delayed the effective date of its guidance regarding using smartcards, debit or credit cards for qualified transportation benefit plans.  IRS Notice 2010-94 provides relief until January 1, 2012 for plan sponsors (employers), administrators and mass transit providers to update their systems in order to comply with the guidance.