Section 132 Transit and Parking Deduction Taxability and Settings

Who is Eligible Under Section 132: As a general rule, the transportation fringe benefit can only be provided by employers to employees. Common law employees and officers of corporations are eligible (the law does not include non-discrimination requirements for the benefit). Sole proprietors, partners, independent contractors, and two-percent shareholders of S corporations are not eligible for this transportation fringe benefit.

Qualified Section 132 Expenses: Parking expenses that can be paid with pre-tax dollars include the costs of (1) parking a vehicle in a facility that is near the employee’s place of work, or (2) parking at a location from where the employee commutes to work (for example, the cost of parking in a lot at the train station so that the employee can continue his/her commute on the train). There is also a qualified bicycle commuting expense of $20 per month for qualified bicycle commuting reimbursement of expenses incurred during the year.

Qualified mass transit expenses include:

Transit passes for mass transportation to and from work. Qualified amounts include costs of any pass, token, fare card, voucher, or other item that entitles the employee to use mass transit for the purpose of traveling to or from his/her place of work. However, when a transit voucher program is readily available, Federal regulations prohibit the use of cash reimbursement as a way to provide transit benefits. Section 132(f) (3) states: Transit Benefits can include cash reimbursement to an employee as long as the reimbursement is for any transit pass, and a voucher or similar instrument which can be used to purchase the transit pass is not readily available for direct distribution to the employee.

The mass transit can be a public system, or a private enterprise provided by a company/individual who is in the business of transporting people in a “commuter highway vehicle.” Such a vehicle must have a seating capacity for six or more adults (not including the driver), and at least 80% of the of the vehicles’ mileage must be from transporting employees to and from their place of work. Additionally, the vehicle must be carrying at least three passengers (not including the driver). Commuter highway vehicles may be owned or leased by an employer to be used by employees or a third-party provider for transportation purposes. Employees can also own and operate commuter highway vehicles.

Qualified Transportation reimbursements for bicycle expenses was eliminated in 2013. See IRS Letter Number 2013-0032.   “Under section 132(f)(1)(B), a qualified transportation fringe includes any transit pass. Under section 132(f)(5)(A), a “transit pass” is defined as any pass, token, fare card, voucher, or similar item (including an item exchangeable for fare media) that entitles a person to transportation on mass transit facilities(emphasis added) whether or not publicly owned. A bike share program is not a mass transit facility.”

Source: http://www.coredocuments.com/core132.php

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Federal Tax Treatment:

2014 and 2015 limits are $130/month for transit and $250/month for parking

Federal Income Tax Exempt
Social Security Exempt
Medicare Exempt
FUTA Exempt

 

State Tax Treatment 

State SIT SUI DBL Local Notes
Alabama Exempt taxable N/A exempt
Alaska N/A taxable N/A
Arizona Exempt exempt N/A  
Arkansas Exempt taxable N/A
California Exempt exempt exempt
Colorado Exempt taxable N/A exempt
Connecticut Exempt taxable N/A
DC Exempt taxable N/A
Delaware  Tax  taxable N/A exempt
Florida N/A taxable N/A
Georgia Exempt exempt
Hawaii Exempt taxable taxable  
Idaho Exempt taxable
Illinois Exempt taxable N/A
Indiana Exempt taxable N/A Exempt
Iowa Exempt taxable N/A
Kansas Exempt exempt
Kentucky Exempt taxable   Exempt
Louisiana Exempt taxable
Maine Exempt taxable N/A
Maryland Exempt taxable N/A  
Massachusetts Exempt taxable taxable
Michigan Exempt taxable N/A exempt
Minnesota Exempt taxable N/A  
Mississippi Exempt taxable N/A
Missouri Exempt taxable N/A exempt
Montana Exempt taxable N/A  
Nebraska Exempt taxable N/A
Nevada N/A taxable N/A
New Hampshire N/A taxable N/A  
New Jersey taxable taxable taxable Exempt
New Mexico Exempt taxable N/A
New York Exempt taxable taxable exempt
North Carolina Exempt taxable N/A
North Dakota Exempt taxable N/A
Ohio Exempt exempt N/A Exempt
Oklahoma Exempt taxable N/A
Oregon Exempt taxable N/A Exempt
Pennsylvania taxable taxable taxable N/A
Puerto Rico Exempt taxable taxable taxable
Rhode Island Exempt taxable taxable
South Carolina Exempt exempt N/A  
South Dakota N/A taxable N/A
Tennessee N/A taxable N/A
Texas N/A taxable N/A  
Utah Exempt exempt N/A
Vermont Exempt exempt N/A
Virginia Exempt taxable N/A  
Washington N/A taxable N/A
West Virginia Exempt taxable N/A
Wisconsin Exempt exempt N/A  
Wyoming N/A taxable N/A

State Tax Treatment:

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1 Comments

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    Michael Lynch

    IRS recently released the 2015 S132(f) monthly limits and they remain unchanged from 2014. I updated the article accordingly.

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