If you are an employee who bikes to work, learn about the Bicycle Commuter Tax Provision, which went into effect January 1, 2009. With the signing of The Bicycle Commuter Act, your employer may now reimburse you up to $20 per month ($240 per year) tax-free for “reasonable” expenses related to your bike commute. Bicycle purchases, improvements, repair and storage are all considered reasonable expenses as long as the bicycle is regularly used for travel between your residence and place of employment. To qualify for the benefit, you must bicycle to work for a substantial part of the month. Ask your employer if you have a Commuter Benefits program at your workplace. If not, ask them to start one. For more information, check out the League of American Bicyclists website at bikeleague.org
Frequently Asked Questions
How will I save?
You can save money by eliminating income and payroll taxes on up to $240 per year (the amount of money provided for qualified bicycle commuting transportation fringe benefits).
How can I take advantage of the bicycling tax benefit?
Your employer must provide the benefit either through a bicycle voucher program or through direct cash reimbursement.
- If your employer purchases bicycle vouchers, you can take the vouchers to any dedicated bicycle shop or bicycle parking or storage location to redeem their value.
- If your employer chooses the cash reimbursement option, your employer will reimburse you for cash outlay costs associated with your monthly bicycle commute.
- The monthly maximum reimbursement of up to $20 comes to you from your employer.
How do I get my employer to sign up?
Setting up a Commuter Benefits program is not difficult. Ask your Human Resources staff to check out bikeleague.org to learn more about this great program. Also, have them consult with company financial and legal staff to get the program set up.
If you are an employer who supports bicycling to work, learn about the Bicycle Commuter Tax Provision, which went into effect January 1, 2009. Great news! The Commuter Benefits tax-free/pre-tax program to encourage employees to commute by transit or vanpools has been expanded to include bicycles.
- Employers can offer their employees up to $115 per month ($1,380 per year) to encourage commuting to work by transit or vanpool.
- And now, employers may reimburse employees up to $20 per month ($240 per year) tax-free for reasonable expenses related to their bike commutes.
Dollar for dollar, it makes sense to offer Commuter Benefits. As a pre-tax payroll deduction, you can save on payroll taxes. As a subsidized benefit, it can be written off as a business expense. Thousands of employers across the country are offering “Commuter Benefits” to their employees, and you could be taking advantage of the savings too.
How does the program work?
A qualified transportation fringe benefits program, also known as a Commuter Benefits program, works like other pre-tax plans such as dependent care and medical reimbursement, except it's much simpler. Commuter Benefits are exempt from the usual restrictions and reporting requirements that accompany other pre-tax programs allowed by the IRS. There are no plan filings or forms for the employer to fill out, no irrevocable elections and no mandatory enrollment dates. Commuter Benefits are not subject to the regulations governing cafeteria plans and cannot be offered as part of one, although the program can be offered in tandem with a cafeteria plan.
Employers can offer Commuter Benefits as a payroll deduction, a subsidized benefit, or a combination of the two.
How much do employers and employees save?
Employers and employees save all income and payroll taxes on the amount of money provided for qualified transportation fringe benefits for commuting. Up to $20 per month ($240 per year) can be provided tax-free for bike commuting. Tax savings allow employees to save in annual commuting costs, while employers save on Federal and State income taxes, social Security (FICA) taxes paid by employers and employees, and unemployment, disability, workman’s compensation and retirement costs driven by salary.
Why would an employer offer a Commuter Benefits program?
Employers interested in tax savings, improved employee morale and recruitment, and reduced turnover are likely to offer Commuter Benefits. They have found that this program enhances their benefits package without increasing overall compensation costs. Commuter Benefits is extremely popular with employees, and is an effective way for firms to show their concern for the environment. Employers that provide Commuter Benefits have noted reduced employee stress, increased job satisfaction, improved on-time arrival and enhanced productivity. And, Commuter Benefits helps to keep an employer’s benefit package competitive.
Who can participate? Are any employers too large or too small for the program?
All types of employers, from single person offices to large businesses with multiple locations, and from every industry category in the private, public and non-profit sectors, have the option to offer the qualified transportation fringe benefit to their employees.
Do employers need to keep detailed records?
There are no special IRS reporting or complex record-keeping requirements for qualified transportation fringe benefits. W-2 or 1099 statements are not required, but if an employer wishes to report pre-tax deductions on their W-2’s, box 14 can be used.
For more information on setting up a Commuter Benefits program, go to irs.gov/publications/p15b/index.html.
For more information on the bicycling provision, check out the League of American Bicyclists website at bikeleague.org.