Commuter Tax Benefit
Qualified Bicycle Commuting Reimbursement
As part of the Emergency Economic Stabilization Act of 2008, known more colloquially as the bailout, employers may now offer up to $20 per month or $240 per year to their employees who commute to work primarily via bicycle. This is a fringe benefit similar to qualified benefits for transit and parking.
What is the reimbursement?
The reimbursement is a tax-free reimbursement for reasonable bicycle expenses incurred by the employee who commutes to work via bicycle. The reimbursement is not included in the employee’s gross income and is therefore nontaxable.
What expenses are covered?
Those expenses considered reasonable include the purchase of a bicycle, bicycle improvements and repairs, equipment (bike lock, helmet, etc.) and bike storage costs. Bike clothing is not a covered expense.
Who is eligible for the benefit?
Any employee who commutes to work via bicycle for a substantial portion of a month is eligible. The IRS has not determined what a substantial portion of the month is so it is up to the employer to decide. Generally this is considered 60% of the time or three days out of a five-day workweek.
This benefit cannot be used in conjunction with other qualified transportation benefits under IRS Code 132. For example, if an employee chooses to receive the bicycle commuter reimbursement for a particular month, he/she cannot also receive parking, transit or any other commuting benefit for that month.
How is an employee reimbursed?
There are several ways to do this, and it is up to the employer to choose how to reimburse their employees.
Employers can choose to use a Commuter Benefit Provider, such as Edenred, who can provide the employer with vouchers to give to their employees. The employer can order vouchers through their website and the employee can use the voucher at any participating bike shop or bicycle parking location.
- Click here for the most current list of participating shops
- Bike shops – click here to join the voucher program
Since most bike shops do not accept these vouchers employers may want to consider another option. You can implement a cash reimbursement program in house. In this case the employee would turn in their receipts and be reimbursed directly for up to $20 monthly. The employer would then send less money to the IRS than reported for employees who utilize the benefit.
Many companies are finding their own ways to monitor the program and distribute the reimbursement. One way is to create a simple form like the one below. Employees sign it, attach qualifying receipts, and turn it in.
Most employers require that the expenses be submitted within a reasonable time frame after the expense was incurred – typically within 180 days. If a purchase is made towards the end of the calendar year, the employer has until 3 months after the end of the year (March 31st) to report the expenses and be reimbursed.
Reimbursements are not funded by an employee’s pretax contributions. Some employers are opting for only one reimbursement at the end of the year.
Being that this is a relatively new benefit with very few guidelines, it is largely up to the employer to determine how they would like to carry out the benefit and how they will go about reimbursing their employee’s reasonable purchases.