December 5, 2006

Smartcards and Debit Cards Allowed for Qualified Transportation Expenses

The IRS and Treasury Department issued Revenue Ruling 2006-57, explaining when a smartcard or debit card can be used to purchase qualified transportation benefits.  Specifically, the Revenue Ruling provides several examples of what would constitute a permitted card.  If a card with an embedded chip is purchased from a mass transit vendor with no more than the maximum $105 for 2006 ($110 for 2007) embedded in the card, the card could be used for mass transit without further substantiation. 

The Revenue Ruling goes on to provide that a debit card, likewise limited to the maximum transportation benefit that can only be used for mass transit, could be used without substantiation.  If the debit card could be used for other than mass transit, then substantiation would be required.  If substantiation is not required, the debit card would not be a valid payment method, even if the debit card is limited to the maximum transit benefit.

Although these provisions become effective on January 1, 2008, the IRS has indicated that employers and employees can begin using these cards now.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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