The IRS released Information Letter 2014-0028 on September 26, 2014 regarding vanpooling. This letter is in response to a recent inquiry surrounding an employer-sponsored transit plan and reminds employers about qualified vanpooling expenses. Department of Treasury information letters provide general statements of well-defined law without applying them to a specific set of facts; however, they can provide insight and clarify intent.
Since 1985, when Section Code 132 first became effective, employers have been permitted to provide transportation fringe benefits such as qualified parking, transit passes, and transportation in a commuter highway vehicle to employees on a tax-free basis. Transportation in a commuter highway vehicle must be used for travel between employees' residences and places of employment. This is known as "vanpooling." A commuter highway vehicle is any highway vehicle that meets the following conditions:
These requirements are sometimes referred to as "the 80/50 rule." The 80/50 rule does not include a requirement that the employee use the vanpool at least 50 percent of the time and transportation is considered as provided by the employer if the transportation is furnished via a commuter highway vehicle operated by or for the employer.
Employer- and employee-operated vanpools, as well as private or public transit-operated vanpools, may constitute qualified transportation fringes:
Both employer- and employee-operated vanpools must comply with the 80/50 rule as outlined in Section 132(f) (5) (B) (ii). Assuming the 80/50 rule is met, the employee receives a pre-tax benefit equal to the value (up to the statutory monthly limit) of an employer-operated vanpool.
When the vanpool is employee-operated, the employer's cash reimbursement to employees for expenses (subject to the statutory monthly limit) is a non-taxable qualified transportation fringe benefit. The employee must substantiate the cash reimbursement.
The statutory limit for 2014 and 2015 for transit passes and vanpooling, combined, is $130 per month.
For more information, click here for IRS Information Letter 2014-0028
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