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Commuter tax benefit moving along as part of tax cuts extension bill

December 14, 2010

One of the provisions in the tax cuts extension deal is "parity for exclusion from income for employer-provided mass transit and parking benefits (sec. 727 of the bill and sec. 132 of the Code)."

These are the transportation fringe benefits offered by many businesses. They typically include reimbursements to employees for the costs of parking, mass transit passes, van pool fees and certain bicycle commuting expenses.

The great thing for workers is that these transportation perks are not counted as part of their income for tax purposes.

In 2009, the American Recovery and Reinvestment Act (the Obama stimulus package) nearly doubled the monthly pretax cap commuters could spend on this benefit. It went from $120 to $230.

The expanded benefit also evened up the tax treatment of employer subsidized mass transit and workplace parking benefits. The change, say supporters, promotes the use of more eco-friendly transportation by commuters.

But this benefit will be reduced next year unless Congress acts, with the monthly cap dropping back to $120.

Luckily for those who must hit the highways to get to work, the bigger benefit is moving closer to passage.

The wordy parity provision noted in the opening paragraph comes straight from the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, better known as the Senate version of the tax cuts extension deal. The Senate agreed yesterday to vote on the full measure, possibly as early as today.

The mass transit provision popped into my head (yeah, I know, scary; just think about what the hubby has to deal with day in and day out) when I saw that IKEA gave bicycles to all 12,400 of its U.S. employees.

SAN FRANCISCO - MAY 14:  Bicyclists ride their bikes along Market Street on Bike to Work Day May 14, 2009 in San Francisco, California. Over 150,000 bicyclists are expected to participate in the 15th annual Bike to Work Day event that promotes exercise and helps reduce pollution.  (Photo by Justin Sullivan/Getty Images)

New wheels! OK, only two instead of four, but still, new wheels!

There's just one problem. The IRS will likely view this bike boon as a taxable fringe benefit rather than a tax-free gift.

Or, as Mary O'Keefee notes in her blog Bed Buffaloes in Your Tax Code, There's No Such Thing as a Free Bike.

Looks like IKEA should have consulted Oprah for tax advice.

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TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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