Pre-tax Parking Benefit Outside a Cafeteria Plan

[Guest BenefitsAnnie]

Hi,

We've been allowing employees to simply request that a certain monthly amount up to $245 for parking be treated as pre-tax income with the caveat that they should retain their receipts in case of audit. The employee notifies payroll to treat x amount of their regular monthly pay as pre-tax income. Employees can adjust or stop their pre-tax amounts at will. Presumably, this amount matches what they are actually paying for parking but we have no way to verify this. It's not a payroll deduction, just a tax treatment that is worked through payroll. We simply shield the income. (This practice predates me.)

I would like to work this benefit through an FSA as I believe we are running afoul of IRS rules by allowing employees to claim tax-exempt income for parking benefits outside of a Section 125 Plan.

I know that we can offer this benefit through our Cafeteria plan. But, can we also offer it outside of the plan. If we run it through the plan, is it subject to the same qualifying life event rules as other Section 125 benefits or can participants change election amounts freely - i.e., I'm taking the metro now and I'd like to stop withholding for parking or I've just found a cheaper garage and I'd like to lower my election amount.

Thanks!

[jstorch]

See Code Section 132(f), qualified transportation fringe, http://www.law.cornell.edu/uscode/text/26/132 and related regulations http://www.law.cornell.edu/cfr/text/26/1.132-9 . Can be done outside of a 125 plan. Though the regulations say a qualified transportation fringe benefit plan is not required to be in writing, it's good practice to do so.

[QDROphile]

See section 125(f) of the Internal Revenue Code for refinement of what a section 125 plan really covers.