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The Transportation Equity Act for the 21st Century allows for employers to offer employees the opportunity to set aside a portion of their salary to pay for certain transportation expenses.
The employee will not be taxed on the amounts that are set aside and used for qualified expenses (that is, pre-tax dollars can be used to pay transportation expenses).
Qualified transportation expenses generally include payments for the use of mass transportation (i.e. train, subway, bus fares), and for parking (see further details below). The maximum monthly pre-tax contribution for 2006 is $105 for mass transit and $205 for parking. |
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The transportation benefit is similar to the pre-tax flexible spending accounts available for medical expenses and dependent care. One important difference, there is no "use it or lose it penalty," as is the case with the medical or dependent care flexible spending accounts.
Before the start of the plan year, individual employees elect to set aside a certain amount of pre-tax salary to cover qualified costs incurred in commuting to work. The employee will designate an amount (up to $105 per month) for mass transit expenses and a separate amount (up to $205 per month) for parking expenses---These accounts must be kept separate, and funds cannot be transferred between accounts (i.e. funds designated for parking cannot be used to pay for mass transit).
As the employee incurs the expenses during the year, a request (usually a claim form) may be submitted for reimbursement. Any amounts remaining in the employee's reimbursement account at the end of the plan year are refunded to the employee in the following plan year (the year after the employee's contributions were withheld from his/her paycheck).
The transportation benefit can only be provided by employers to employees. Common law employees and officers of corporations are eligible (the law does not include non-discrimination requirements for the benefit). Sole proprietors, partners, independent contractors, and two-percent shareholders of corporations are not eligible for this benefit.
Parking Expenses include
 Parking a vehicle in a facility that is near the employee's place of work.
Parking at a location from where the employee commutes to work (for example, the cost of parking in a lot at the train station so that the employee can continue his/her commute on the train).
Transit passes for mass transportation to and from work. Qualified amounts include costs of any pass, token, fare card, voucher, or other item that entitles the employee to use mass transit for the purpose of traveling to or from his/her place of work.
Mass transit can be a public system, or a private enterprise provided by a company/individual who is in the business of transporting people in a "commuter highway vehicle." Such a vehicle must have a seating capacity for six or more adults (not including the driver), and at least 80% of the vehicles' mileage must be from transporting employees to and from their place of work. Additionally, the vehicle must be carrying at least three passengers (not including the driver). Commuter highway vehicles may be owned or leased by an employer to be used by employees or a third-party provider for transportation purposes.
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