Mass transit: a new employee benefit

HR Magazine, March, 1992 by Rita Dommermuth

Under a little-known provision of the Internal Revenue Code, employers can provide tax-free vouchers, tokens or tickets worth up to $21 a month to employees who use mass transit to get to and from work.

These programs are proving especially popular among smaller firms. Because it is a low-cost, high-visibility benefit that's easy to administer, companies don't need a full-time benefits administrator to offer it.

Aside from ordinary record-keeping, the Internal Revenue Service imposes only one requirement on employers: They cannot provide the subsidy in cash. An employer may purchase and distribute tokens, tickets, passes or vouchers and distribute them to employees.

To help employers take advantage of this benefit, transit agencies in several regions have established voucher programs, providing checklike vouchers that employers may purchase and distribute to employees. Voucher programs have been implemented in Philadelphia, New York, Chicago and Los Angeles.

Tax consequences

The regulations governing these programs are found in section 132 (d) of the Internal Revenue Code. The tax consequences of offering such a program are straightforward: * The benefit is considered a de minimis fringe benefit under IRS rules--of such small value as to make accounting for it unreasonable or administratively impracticable. The de minimis rule puts transit passes in the same category as free coffee and use of the company copier. Neither the employer nor the employee pay federal income or Social Security taxes on the benefit. The costs are deducted by the employer as an ordinary business expense. * The employer-provided benefit can be no greater than $21 per month per employee. (Legislation has been introduced in Congress to increase this limit.) Employers may provide a smaller subsidy if they wish, and they can limit eligibility for the benefit. If an employer offers a transit subsidy of more than $21 per month ($252 per year), the entire subsidy is taxable.

But, the $21-per-month limit applies only to employers' subsidies. Additional discounts offered by transit agencies have no impact on the limit. * The subsidy does not appear on the employee's pay stub or W-2 form. The employee is not required to show the subsidy on his or her federal income tax return.

Philadelphia's TransitChek program

The TransitChek program in the greater Philadelphia area, administered and operated by the Delaware Valley Regional Planning Commission (DVRPC), involves cooperation among eight transit operators in Pennsylvania, New Jersey and Delaware.

DVRPC developed the Commuter Benefit Program under a $300,000 grant by the federal Urban Mass Transportation Administration.

DVRPC acts as the central clearinghouse for TransitChek vouchers. Employers purchase them in $15 denominations from DVRPC and distribute them to employees. (The monthly limit imposed by the IRS was $15 when the program was launched in June. It has since been raised to $21.) Employees use the vouchers as they would cash to buy tokens, passes and tickets. Area transit companies, in turn, redeem the vouchers for payment by DVRPC's bank.

The program, launched in June 1991, has already signed up approximately 40 area companies.

For more information on the TransitChek program, contact the Delaware Valley Regional Planning Commission, 21 South Fifth Street, Philadelphia Pa. 19106, or call (215) 592-1800. Rita Dommermuth is marketing manager for the Delaware Valley Regional Planning Commission, Philadelphia, Pa.