Employers may provide ways to make it easier for employees to commute back and forth from work. Now the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) has equalized the three main tax-free benefits for transportation, beginning in 2016. This relates to mass transit passes, commuter highway vehicle expenses and qualified parking fees.
1. Mass transit passes: A transit pass is any pass, token, fare card, voucher or similar item entitling a person to ride free of charge or at a reduced rate on mass transit, or in a vehicle seating at least six adults (not including the driver) if a person in the business of transporting persons for pay or hire operates it. Mass transit may be publicly or privately operated and includes transportation aboard buses, trains and ferries.
2. Commuter highway vehicles: A commuter highway vehicle is any highway vehicle that seats at least six adults (not including the driver). To qualify, it must be reasonably expected that at least 80% of the vehicle mileage will be for transporting employees between their homes and workplaces, with employees occupying at least one-half the vehicle’s seats (not including the driver’s).
3. Qualified parking fees: This category includes parking benefits that an employer provides to its employees on or near the business premises. It includes parking on or near the location from which employees commute to work using mass transit, commuter highway vehicles or carpools. However, the tax exclusion does not apply to parking at or near the employee’s home.
Prior to the PATH Act, the maximum tax-free monthly benefit was scheduled to be cut from $250 to $130, or almost half of the previous amount, for transit passes and commuter highway vehicle expenses. The maximum tax exclusion for qualified parking fees was to remain at $250 per month. But the new law puts the benefits for transit passes and commuter highway vehicles on the same level as qualified parking fees. The maximum $250 tax-free monthly benefit was restored for 2015 and made permanent.
Furthermore, the PATH Act includes a provision for indexing the amounts for 2016 and thereafter. The IRS recently announced that the maximum monthly tax-free benefit for 2016 is $255.
Consider implementing one or more of these benefits for employees. Your professional advisers can help with the details.