December 3, 2014

Use of Electronic Media for Qualified Transportation Expenses (article)

Under a qualified transportation program, employers can reimburse employees for certain commuter expenses such as parking, mass transit fares, and van pooling on a tax-favored basis.  On November 21, 2014, the IRS issued guidance (Revenue Ruling 2014-32) about how a qualified transportation plan can reimburse expenses in a tax-favored manner.   Essential to this analysis is that the employer sponsoring the plan must ensure that the transit expense has been incurred prior to it being reimbursed.  Further, the employee must annually certify that all expenses have in fact been used for qualified transit purposes. 


There are a number of methodologies that can be used to reimburse such expenses including a credit or debit card, a terminal-restricted debit card, a merchant category code (MCC) card, smart card or other types of electronic media.  According to this Revenue Ruling, there is no bright line test available to determine the appropriateness of the particular reimbursement methodology; rather the facts and circumstances govern whether the requirement that the reimbursement be made after the expense has been incurred is satisfied.  This guidance provides eight different examples illustrating instances that are permissible and those that aren’t.  An employer sponsoring a qualified transit program that uses debit or other types of smart card payment methodologies would be advised to review these examples to ensure that their program complies.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

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