The Killer Commute

Free Ride, Almost

Under the IRS proposal, employees could set aside up to $65 per month for both van-pooling expenses and transit fares, and up to $180 per month for parking costs. Through these accounts, employees receive reimbursement for their parking or transit fares and don't have to pay taxes on that amount.

For example, a commuter with $245 in monthly parking and transit expenses may be able to save $750 to $900 in taxes per year, depending on the tax bracket. "This adds up to a tremendous savings for employees," says Bonnie Whyte of the Employers Council on Flexible Compensation (ECFC), an association representing 2,800 employers nationwide. It's a welcome idea to employers as well. Though business owners are allowed to pay for employee transit fares and parking, few employers currently provide this benefit because of the cost.

The cost to an employer of setting up and administering the proposed program should be minimal, as long as it's done within the company, says John Hickman, a partner in the Atlanta office of the law firm Alston & Bird LLP and chairman of ECFC's technical advisory committee. With day-care and health-care accounts, companies often use third-party administrators because such programs involve a level of expertise not available in most companies, but that option is obviously expensive. The individual who does your company's billing and payroll should be able to handle the transportation account, according to Hickman.

As a way to encourage employers to sign up for the program, the IRS will allow them to establish and operate transportation savings accounts without written plans, which are normally required when companies set up new fringe benefits. In addition, the program would allow workers to carry into the next year any unused portions of their monthly allotments. With health-care and day-care spending accounts, employees are required to use what is in their accounts by the end of the year or forfeit any funds that have not been spent by that time.

The proposed rule would also simplify record-keeping requirements to some extent. For example, workers could show receipts for parking or transit costs if they are available; and if they aren't, employees would still be able to sign a statement indicating that they have incurred the costs.

The new proposal "would be ideal for small to midsized companies," says Whyte. "It would work especially well in urban areas with expensive parking where large numbers of people take public transportation."

One issue that still must be clarified by Washington has to do with the effect these proposed transportation accounts would have on pensions. Unfortunately, lawmakers did not indicate whether reducing workers' pay for tax purposes to provide the transportation benefit also lowers it when calculating retirement benefits.

Whyte says she expects clarification on that issue either from the IRS or Congress. She predicts the rule will be finalized by the end of the year.

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This article was originally published in the October 2000 print edition of Entrepreneur with the headline: The Killer Commute.

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