An employer in the United States may provide transportation benefits to their employees that are tax free up to a certain limit.
[1][2] Commuting expenses in general are not excluded from taxable compensation in US tax law (for example, the cost of fuel to drive to the regular work place cannot be deducted).
The goal of making the specific benefits described above nontaxable is to encourage forms of commuting that reduce road congestion and pollution.
Commuter benefits are not governed under the same rules and regulations as Flexible spending account (FSA) arrangements and are treated differently for tax and reporting purposes.
Normally these kinds of fringe benefits referred to things that an employer provided, but would be tax-deductible if paid for by the employee.
[6] The same 1984 law sought to redress the unintended consequences of tax-free employer-provided parking by creating a federal tax incentive for transit that employers could offer to employees.
In response to a congressional request contained in that law, the IRS agreed to allow employers to provide a $15 monthly transit fringe benefit to employees.
In 1993, as a result of the success of the TransitCenter program that was called TransitChek and the increasing cost of transit commuting expenses, a new section of the Internal Revenue Code was enacted to consolidate employer provided tax benefits for commuting under a single statutory provision and to expand incentives for transit and vanpooling.
In response to the growing use of debit and credit cards (and other electronic media) for purchases for transit passes, the IRS issued a new set of guidelines to take effect beginning January 1, 2010.
Section 132(f) of the Internal Revenue Code allows an employer to pay commuting employees' "qualified transit" costs, up to a monthly limit.
Commuter vanpooling is recognized by the IRS as a form of "qualified transit" along with bus, rail, and ferry services.
Parking must be on or near the employer's premises, at a mass transit facility such as a train station or at a car pooling center.
[25] The bicycle commuter benefit was added to IRS Code 132(f) as part of the Emergency Economic Stabilization Act of 2008, signed into law on October 3, 2008.
The most direct way is for employers to administer the program themselves arranging for transit passes, for example, to be sold or given to employees at the worksite.
In addition, the providers or TPAs handle all of the compliance issues necessary to ensure that the products and services are in conformance with IRS regulations.