Types of Plans
There are three primary types of qualified transportation plan designs, each of which represents a different employer choice about the method of funding:
Giveaway Plan |
An employer "gives away" to it's employees benefits up to a specified maximum amount |
|
Pre-Tax Compensation |
Employees pay all the costs on a pre-tax basis through the use of compensation reduction agreements |
|
Giveaway Plan with |
Employees pay all the costs on an after-tax contribution basis. This variation on the above two designs allows employers to provide a subsidy while giving employees the ability to pay excess costs with after-tax dollars. |
Our Most Popular Plan
The Giveaway plan with pre-tax compensation reductions, after tax contributions and/or cash-outs is the most popular plan design. It is quite common for employers to design a plan that combines an employer giveaway with pre-tax compensation reductions. For example, the employer might agree to pay up to $50 per month for transit passes but only $20 per month for parking (to encourage the use of mass transit), with employees to pay the remaining cost via pre-tax compensation reductions.
The ability to pay with after-tax dollars simply gives employees an option to purchase more benefits than the employer is willing to subsidize. It is not an unusual feature, particularly when electronic payment cards are used with the transportation plan.
Three types of benefits meet the definition of qualified transportation fringes:
| Qualified Parking |
Includes the following types of parking:
|
| Transit Passes |
Park and ride expenses qualify as parking or transit expenses if the employee is commuting to and from work. If the employee pays to park at the parking lot, they will be considered qualified parking expenses; the mass transit costs will be considered transit pass expenses. Monthly limit for transit passes and vanpooling comined is $115 for 2008, also subject to cost-of-living adjustments for future years. |
|
Vanpooling |
There are three types of vanpool benefits:
|
An employer-operated van is one purchased or leased by the employer (or the employer may contract with a third party to provide the van and pay some or all of the operating costs, such as maintenance, liability insurance and other operating expenses) to enable employees to commute together to the employer’s place of business. (For example, some employers will purchase a van to transport employees on the last leg of their commute – such as from a commuter train station to the front door of the employer’s place of business.) An employee-operated vanpool is one operated for the business of transporting persons for hire.
Are Carpool Expenses Reimbursable as Vanpooling Benefits?
Because of the seating capacity and mileage use requirements, many family vehicles used for carpooling won’t qualify as commuter highway vehicles. This is because these typically are used as a family vehicle, and even if the vehicle has sufficient seating capacity, the vehicle probably would fail the other requirements for mileage usage. However, the costs of parking such a family vehicle on or near the employer’s business premises in the course of commuting to work may constitute qualified parking expenses.
Plan Design Choices Checklist
| Eligibility and Participation | Who can participate and when? |
| Benefits | Does the employer wish to offer qualified parking? Transit passes? Vanpooling? |
| Funding | Will the employer fund 100% of the benefits through compensation reduction (pre-tax salary plan). Will employees pay any benefits on an afer-tax basis? |
Miscellaneous
• A valid compensation reduction arrangement is required
• Current participants can carry over unused amounts
• Cash refunds of unused amounts are not allowed
• Reimbursement can be limited according to how much the employee has contributed
• The election must be irrevocable for the specified period, such as a month
