Tax code information on Commuter Check
Commuter Check is considered a "Qualified Transportation Fringe Benefit" governed by 26 USC Section 132(f). The law allows employers to give employees up to $1,320 per year in Commuter Checks as a pre-tax payroll deduction or a tax-free employee benefit. Any expenses associated with the program are also fully deductible by employers.

For a detailed look at potential tax savings, view our Tax Savings Worksheet.

In January 2001, the IRS issued final regulations on Qualified Transportation Fringe Benefits. This describes how these benefits can be excluded from employees' gross income, whether provided as a benefit or pre-tax deduction. In addition to explanation of the regulations, there is a Q & A section that provides definitions, details on limitations and further program guidance.

The regulations can be found in Federal Register/ Vol. 66, No. 8/ Thursday, January 11, 2001/ Rules and Regulations - Pages 2241-2251, or by downloading it as a PDF file (requires Adobe Acrobat Reader).

Administration
Implementing Commuter Check is easy. There are no complex regulations and requirements like those associated with Section 125 Flexible Spending Accounts and "use it or lose it" provisions do not apply. No formal plans need to be filed. Any documentation is at the discretion of the employer. Commuter Check is not provided in conjunction with any cafeteria plan.

Cash reimbursement and debit programs
The popularity of the Commuter Check program has caused some human resources consultants and service providers to offer alternate programs, including debit cards and cash reimbursement, that are not consistent with IRS regulations. Employers should exercise caution in this area. When a transit voucher or pass program is readily available (as defined by IRS regulations), employers are prohibited from using cash reimbursement as a way to provide transit benefits. Debit cards that allow the value to be used for purchases other than transit fares are, in effect, cash reimbursement.

Some debit card programs are being offered by benefit vendors with little experience with public transit. These cards have limited use and unlike Commuter Checks cannot be redeemed by all transit agencies or at retail outlets that most employees use. Commuter Checks remain the only transit benefit instrument that provides maximum benefits for monthly and occasional riders. (Here's an example: In the San Francisco Bay Area, BART high value fare cards with bonus value are not available at BART vending machines. They are only available at BART ticket vendors, most of which accept Commuter Checks and do not accept debit cards.)

Consult with your local transit operator to determine applicability in your area.

Click here for Tax Code Cautionary Notice.

Click here for Questions to Ask Alternate Transit Benefit Vendors.

Special note for self employed individuals
The IRS defines self-employed persons as individuals who are partners, sole proprietors, S-Corp. employees with 2% or more ownership, and independent contractors. They are excluded from Section 132(f). However, they are included under earlier "de minimis fringe" regulations and are entitled to a $21 per month ($252 a year) maximum tax-free transit benefit. See Question 24 in the Q & A of the regulations noted above for further detail.

Employers should contact their own tax advisors to determine applicability to individual situations.