Bicycle share expenses — incurred, for example, when one dips a credit card into a pay kiosk on the street in order to rent a bicycle from a public bike rack — do not qualify as payment for transportation on “mass transit facilities,” as some have argued, nor do they constitute a “qualified bicycle commuting reimbursement” under Code Section 132(f)(1)(D), the IRS said in a legal memorandum it released on Sept. 27.
A taxpayer wrote to the IRS requesting that the agency “adopt bike share as a qualifier for the Transportation (Commuting) Benefits program under the Fringe Benefit Exclusion Rules for transit.” The IRS responded that to do so would require a change in the tax law.
In 2008, Congress added certain bicycle commuting expenses to the list of transportation modes for which employers could reimburse their employees on a tax-free basis. However, lawmakers imposed limitations to the allowance, specifying that the benefit was to be paid as a reimbursement for out-of-pocket expenses only, not to be paid through deductions in an employee’s salary, as many mass transitand parking QTFBsare paid.
Under the 2008 amendment, qualified reimbursements could include an employer’s reimbursement for an employee’s purchase of a bicycle used for commuting as long as it was purchased within the 15-month period beginning with the first day of the applicable calendar year. Other qualified reimbursements could include those to cover expenses incurred forbicycle improvements, repair and storage.
But the IRS memo concluded that bicycle share expenses do not fit within the definition Congress provided for qualified bicycle reimbursements, nor do they fit into the mass transit category.
Not a Transit Pass, Either
Bike share programs have become a form of transportation in many cities, with networks of bike racks and pay kiosks and large numbers of users. But the IRS rejected the notion that paying bike share fees is akin to paying to ride aboard a mass transit system. It concluded that while under Section 132(f)(1)(B), a QTFB includes any “transit pass,” a bike share program is not a transit pass, which the tax Code defines as “any pass, token, farecard, voucher or similar item (including an item exchangeable for fare media) that entitles a person to transportation on mass transit facilities whether or not publicly owned.” The memo states, “a bike share program is not a mass transit facility.”
The Bicycle Commuting Benefit
The bicycle commuting benefit came into being long after the other QTFB categories made it onto the law books. Congress tacked the new benefit onto the Emergency Economic Stimulus Act of 2008, enacted even as financial markets were still reeling and the economy was quickly deteriorating. The benefit did not necessarily do much for the economy, but it is common for lawmakers to slip unrelated provisions into larger bills that are on the fast track to passage. Such an expedience was the vehicle for the bicycle commuter benefit.
The additional benefit permits a $20 monthly reimbursement for each month in which an employee “regularly uses” a bicycle to commute to work, but not during any month in which that employee gets any other type of transportation reimbursement under Section 132(f). The maximum benefit is the number of “qualified bicycle commuting months” in a 15-month period beginning after the first of the applicable calendar year (after Dec. 31, 2008), times $20.
A “qualified bicycle commuting month” is defined as any month during which an employer “regularly uses the bicycle for a substantial portion of the travel between the employee’s residence and place of employment and does not receive any benefit described in subparagraph (A), (B) or (C) of paragraph (1)” of Section 132(f).
What’s Next?
The IRS will stand pat on its interpretation, and proponents of including bike share programs under the QTFB laws and regulations will have to lobby Congress.
Thompson Publishing was not aware, as of press time, of any group that has asked that car share programs be included as a QTFB, but it should be noted that a car share program works much the same way bike share systems do, with cars parked in designated spots around town that member-users can unlock with a magnetic card and pay by the hour to drive.
For more information, see the Employer’s Guide to Fringe Benefit Rules.