Employer Transportation Benefits in The United States - History

History

Prior to 1984, the IRS treated free employee parking, provided by an employer, as a tax-free fringe benefit regardless of the value of the parking. There was no tax-free benefit for transit commuting. This parking subsidy served as an incentive, in some cases a significant incentive, to drive to work even in areas where there was a good transit alternative. Many believed that such subsidies contributed to the growing congestion on the highways. In one study conducted in the New York City metro area, as many as 64% of the solo drivers commuting into Manhattan, an area well served by transit, were receiving a parking subsidy.

An effort was begun in 1984 to redress this situation by creating a federal tax incentive for transit that employers could offer to employees. In response to a congressional request contained in the Deficit Reduction Act of 1984, the IRS agreed to allow employers to provide a $15 monthly transit fringe benefit to employees. TransitCenter in New York was created by the area transit agencies working with local governments and the business community, and funded by the federal government, to create a program to sell this benefit to employers as one way to reduce congestion.

In 1993, as a result of the success of the TransitCenter program that was called TransitChek and the increasing cost of transit commuting expenses, a new section of the Internal Revenue Code was enacted to consolidate employer provided tax benefits for commuting under a single statutory provision and to expand incentives for transit and vanpooling. This new provision, section 132(f), increased the monthly cap for transit and vanpooling to $60 a month, limited the parking benefit to $155 a month and added an annual index that increased the monthly caps in $5 increments as the cost of living increased. However, the tax free benefits were limited to employer paid benefits until 1998 when the Internal Revenue Code was further expanded to permit as an alternative pretax or employee financed commuter benefits. The current commuter benefit program is a consequence of these changes.

One other major change in the interpretation of the commuter benefit law occurred in late 2006 concerning the growing use of debit cards for transit benefits, an issue not addressed in the statute or in previous regulations. In response to the growing use of debit and credit cards (and other electronic media) for purchases for transit passes, the IRS issued a new set of guidelines to take effect beginning January 1, 2010. The new ruling states that a debit card (or other electronic media) used to provide transit benefits must be restricted for use only at those points of sale where only transit fare media, tickets, and passes are sold (terminal limited debit cards) to qualify as self-substantiating so that they could be categorized as transit passes. Debit cards that are not terminal limited are considered cash reimbursement and require substantiation.