Section 132 Pre-Tax Transportation Expenses

[Guest Joie]

I have data on the IRS regulations, but am looking for sample administration guidelines. Is this program administered similarly as a Section 125 or 129? Do employees make an annual "election" and submit their qualified expenses? Can anyone direct me to some other resources on this hot topic.

[Guest Do]

I responded to another similar message string titled, TEA-21. I’ll copy and paste below my last message. To answer your question, I don’t see why a qualified transportation fringe benefit (QTFB) program has to be set up like a cafeteria plan or a dependent care plan. I think it can be set be set up like a cafeteria plan, but I don’t see anything in TEA-21, or 132(f) that requires it. The only guidance I have seen is Notice 94-3 which discusses QTFBs before TEA-21 and TRA ‘97. Anyway, at this time, my view is that there may be two methods of implementing reimbursements of QTFBs. I have a call to the IRS’ Office of the Associate Chief Counsel, but have not received a return call. You might want to try too. The number is (202) 622-4606 (not a toll-free number). You say in your message that you have data on the IRS regulations, could you elaborate on what you mean? I wasn’t aware that there are IRS regulations on Code §132(f) and I’m not sure what you mean by “data?” Thanks, here’s a copy of the last message from the topic, TEA-21.

The First method is already mentioned, the cafeteria-like method. If an employee elects to contribute the maximum amount on a before tax basis each month, the employee may be reimbursed each month or at any time of the year. Theoretically, an employee should be able to reimbursement for a complete year so long as the reimbursement amount does not exceed the monthly maximum. In other words, if, in the end of December, an employee wants to be reimbursed for the QTFB parking, he or she may receive a reimbursement of $1,860 (which is $155 times 12). Therefore, I believe unused contributions can be carried over to subsequent months. As of December, any unused portion should be paid to the employee as income so that it is included in his or her W-2. I believe this is allowed under Notice 94-3, which is guidance on 132(f) before TEA-21.

The second method is a reduction of taxable gross pay method. Anytime during the year, an employee may ask for reimbursement of QTFBs. The employee is reimbursed by reducing his or her taxable income by the amount of the QTFB. For instance, if an employee’s gross pay is $3,000 a month and wants to be reimbursed for QTFB parking, his or her gross pay would be reduced by $155 to $2,845. The employee would receive net pay plus $155. Net pay would be $2,845 less employment tax, income withholding, 401(k) deferrals, cafeteria contribution, etc. Any QTFB will affect 401(k) deferral and if an employees retirement benefit is percentage of W-2 compensation, his or her retirement benefit will be affected. I know this method seems too good to be true (which in my experience means it is), but then again: (i) I cannot find a rule prohibiting it and (ii) TEA-21 wasn’t written by tax people. Does anyone think I’m stretching it too far with option 2.

I have a question of transit pass QTFBs. Transit pass QTFBs are allowed as a reimbursement program if, and only if, voucher system is not “readily available.” Notice 94-3 defines vouchers as “readily available” if (i) they are available on terms no less favorable than those to an individual employee and (ii) without incurring a significant administrative cost. In my city, we have Commuter Checks which cost 2.5% of the value of the Commuter Check. It seems to me that 2.5% is not a significant administrative cost. However, in terms of dollars, if the number of employees who participate in transit pass QTFBs is high, then the cost can become very high and significant. Am I stretching it too far by viewing administrative costs in dollars, rather than percentages, in determining whether it is significant.

[Guest Marcia]

The Joint Committee on Taxation states that "employers should have a written and properly adopted plan" for this Transportation Benefit. Does anyone have any idea what the Plan should include??

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dgarcia@realtors.org

[Guest Annie]

Hello---Has anyone written a Section 132 plan document? If so, will you share your template with me? Many thanks.