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Tax Reform Impact on Employer Transportation Benefits

How did Tax Reform impact deductions for employer transportation benefits?

 Qualified Transportation Expenses:

While qualified transportation fringe benefits (such as parking and transit passes provided for the employee) remain tax-free for employees, employers are NOT allowed deductions for payment of these expenses. 

 Tax Trap: Watch out for employee pretax contribution arrangements for transit and parking benefits. By offering a pre-tax commuting benefit, the law basically says you are indirectly paying commuter benefits that are nondeductible.

Example: Your business doesn’t pay for any parking or commuting expenses. Instead, your business offers a pre-tax payroll deduction that employees can make. John is paid $5,000 a month and elects to have $250 deducted on a pre-tax basis to cover commuting expenses.

Tax Result: Employer is deemed to pay $4,750 cash and $250 indirect payment for commuting costs. Employer tax deduction is limited to $4,750 (rather than $5,000).

Bicycle Commuting Expenses:

No employer deduction will be available for any bicycle commuting reimbursements from 2018 through 2025. In addition, any bicycle commuting benefits received by the employee is now taxable which means the employer also needs to pay employer payroll taxes on this benefit.

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Richard Pon CPA, CFP