Commuter benefits are authorized under Section 132(f) of the Internal Revenue Code. Since 1984, numerous changes in Federal tax law have continually expanded the scope and benefits of the tax code provisions. Initially the transit benefit was limited to $15 per month and had to be provided as a company-paid subsidy.

Currently, employers can provide a transit fare subsidy up to $110 a month, or allow employees to direct up to $110 a month as a pre-tax payroll deduction (or a combination of both). Additionally, the law allows commute-related parking expenses of $215 per month to be a pre-tax payroll deduction or an employer subsidy (or a combination of both). The pre-tax option was authorized in 1998 and has proven to be extremely popular.

In 2001, the Internal Revenue Service issued detailed regulations on Section 132(f) to clarify and provide guidance on implementation of the law. Notable elements of these regulations are the requirements and conditions that must be met in order for employers to use cash reimbursement as a way to offer the transit benefit. Generally, the regulations strongly favor the use of fare instruments such as passes, tickets and vouchers. Further, they established strict procedures and record-keeping (substantiation) requirements for the use of cash reimbursement.

Commuter Check solutions are 100% compliant with all IRS regulations.

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.