On Friday, December 18, 2015, when President Obama signed the Protecting Americans from Tax Hikes (PATH) Act into law, one of the provisions included in the law made the monthly limit on qualified transportation benefits for public transportation equal to the monthly limit applicable to parking benefits.
On Friday, December 18, 2015, when President Obama signed the Protecting Americans from Tax Hikes (PATH) Act into law, one of the provisions included in the law made the monthly limit on qualified transportation benefits for public transportation equal to the monthly limit applicable to parking benefits. This means that, for 2016, instead of $130 per month as was recently announced by the IRS, the limit on commuting benefits that could be provided tax free will be nearly doubled, to $255 per month. (Technically, the limit for this year increased as well, to $250 per month, but since there's only a week left before the end of the year, that increase is fairly moot.) This increase is permanent – or as permanent as tax reductions are – unlike the temporary increase enacted in 2009.
The increase is particularly timely for commuters in New York City and Washington, DC, both of which, starting January 1, 2016, will require employers to offer employees the opportunity to receive tax-free commuter benefits. The increase amounts to an additional $1500 that can be received tax free over the course of the year. (Other jurisdictions, such as San Francisco, have already had this requirement in place, and those employees will receive the benefit of the increase as well.) Whether it is provided by the employer, or the employee is given the opportunity to reduce his or her compensation in exchange for the benefit, the tax savings can be substantial, in some cases being more than double the tax savings of the former limit.
If you have a qualified transportation benefit plan, particularly one that is funded through employees' elective salary reductions, you should change the plan if necessary to reflect the increase, and make sure that employees have the opportunity to change their elections (if necessary). In addition, it may be necessary to make arrangements with a vendor for delivery of the larger amounts of benefit, whether you use vouchers, payment cards, or some other form of media.
If you have any questions regarding this Alert, or the changes described, please feel free to contact the author of this Alert, Jeffrey Ashendorf, at jashendorf@fordharrison.com, or any member of FordHarrison's Employee Benefits Practice Group. If you have questions specifically about the New York City or Washington, DC ordinances, contact any of the attorneys in our New York or Washington offices, respectively. You may also contact the FordHarrison attorney with whom you usually work.