Bicycle Commuter Tax Provision:
Frequently Asked Questions

These WIll be Updated Often As More Information is Available

I am a bicycle commuter: how and where do I apply?

The League of American Bicyclists is also in the process of working with a leading provider of transportation benefits in the United States. They focus solely on commuter benefit programs and are the only national provider of transit voucher programs. Additionally, they are the primary provider of transportation vouchers to the U.S. Government, and serve dozens of State and local government agencies and thousands of employers of all sizes and types in the private and non-profit sectors.  The company is very interested in adding the bicycle benefit to their commuter portfolio and we are hoping they will have something in place by January 1, 2009. We will provide updates as they become available.

However, please note that as the parking, transit, and qualified parking programs, the bicycle commuter provision is a voluntary fringe benefit, so your employer will still have to set up a process to administer the benefit that works for your organization.  Two options that employers currently use to administer qualified transportation fringe benefits programs for their employees are; cash reimbursement and employee paid pre-tax benefit option.  Both of these would work for the bicycle benefit as well.

Cash Reimbursement:
In general the term includes cash reimbursement by an employer to an employee for expenses incurred or paid by an employee for transportation in a commuter highway. Employers can reimburse employees for cash outlay for transit commute in areas where vouchers or bus/rail passes, tokens, farecards, tickets, etc. are not "readily available" to be exchanged for transit or vanpool services.  The cash reimbursement can be up to the allowable monthly amount of $115, and the reimbursement is made from corporate funds or pre-tax employee salaries, or a combination of both.  Employee must provide monthly transit expense receipts to employer to receive reimbursement.

The key point to consider in setting up a cash reimbursement program is that there is a mechanism for employee to certify that they will commute to work by bike a substantial portion of the month (that could 60% of the time as an example). Additionally, that there is a bona fide reimbursement arrangement whereby the employee provides receipts for covered expenses incurred such as, bike maintenance, commuting gear, parking facilities, changing or shower facilities etc…

Employee-Paid Pre-tax Benefit Option 
Many smaller companies choose this option.  By establishing a pre-tax deduction program, employers permit their employees to exchange part of their gross income for an employer-provided transit or vanpool pass. Since the employees fund the benefit, employers save Federal payroll and income taxes. The amount of the pre-tax deduction is no longer treated or reported as taxable salary. In many areas, this deduction may also be free of state or city income tax.  

This special transportation pre-tax benefit program is exempt from complex use restrictions common to cafeteria plans and flexible spending accounts (FSA). These "qualified transportation fringe benefits" are excluded from cafeteria plans under section 125 of the Internal Revenue Code (Title 26). The company will not have to write a plan document or obtain IRS approval, so there is less paperwork. There are no irrevocable elections or forms.  A pre-tax program can be started any time of the year, or enrollment can be limited to certain times of the year. 

When does the bill become effective?

Effective Date –Tax year beginning January 1, 2009

I am a bicycle commuter: how and where do I apply?

As the parking, transit, and qualified parking programs, the bicycle commuter provision is a fringe benefit, so your employer will still have to set up a process to administer the benefit that works for your organization. The League of American Bicyclists is taking the lead to obtain guidance from IRS that employers can use to set up their programs.

How does the program work?

The original intent was that an employer could now provide up to $20 a month in incentives related to an employee's bike commuting, to include, but not limited to, bike parking facilities, shower facilities, and maintenance then deduct that amount from their taxable income. Again, we will work with IRS to establish more guidance for interested employers.

Some employers already offer perks to bicyclists. The City of Palo Alto offers bicycle commuters $20 per month in taxable cash benefits if they commute by bicycle to 60% or more of their scheduled shifts. Google, at its Mountain View, Calif., headquarters, offers employees bike tune-ups once a month. Discovery Communications, owned in part by Discovery Holding, reimburses employees $350 for a bike, and it designed its three offices in the Washington, D.C., area as "bicyclist friendly," with secure bike racks, day lockers and showers. Yahoo! has bike lockers and showers at its Sunnyvale and Santa Clara, Calif., buildings and a "bike buddies" matching program so employees can share bicycle commuting tips and trips.

Why was the bicycle commuter act part of the financial rescue package?

The Bicycle Commuter Act has been in front of Congress for seven years; it’s a simple, equitable provision that puts cyclists on the same footing as people who get tax breaks for taking transit or driving (or parking, actually) their cars to and from work. The total anticipated cost of the provision, estimated by the Joint Committee on Taxation, is a very modest $1 million per year, as compared to the $4.4 billion annual cost of parking and transit benefits.

The bike provision was part of a larger Renewable Energy Tax Credit Initiatives legislation. Varying versions had passed both the House and Senate but the two houses were unable to compromise on one version.

The Senate strategically attached a number of provisions to the Financial Rescue Package to ensure their passage before recess. These included the Renewable Energy Tax Credit Initiatives; the Alternative Minimum Tax adjustment; extensions of expiring tax cuts for businesses and families; natural disaster relief; and parity for mental health treatment.

If I put my bike on a bus/train for part of my commute, can I still get the benefit?

At this time, the language would preclude one from obtaining both a transit pass benefit and a bicycle commuting benefit, but this is something that the League will be looking to rectify in the next surface transportation reauthorization in regards to expanding access to transit.

Who made this happen?

Congressman Earl Blumenauer (D-OR) and Senator Ron Wyden (D-OR) have been the Congressional champions for legislation that would provide tax fairness so employers could offer the same transportation fringe benefits for bicyclists that they offer to employees who commute by car and public transit for a number.

The League of American Bicyclists has worked closely with both to provide grassroots support as well as identify other Congressional sponsors for the provision.

Why is the benefit only $20/month when transit users get $115 and car parkers $210 each month?

Proponents of the measure certainly wish it was higher, in fact, the initial request was for an $80 a month benefit which was approximately 25 percent below the transit benefit, which is set at $115. However, many Congressional Members had concerns about the program in general and specifically with the $80. Ultimately, the $20 per month figure was the result of compromise to enable the provision to move forward.

Our challenge now will be to ensure that the program is implemented effectively to demonstrate that there is a demand for such a benefit. We can then go back to Congress to increase the monthly benefit.

What costs are covered?

Most of the costs associated with commuting by bike are fixed and are barely affected by the daily distance covered. The intent of this provision is to help defray some to those fixed costs such as; the purchase of a decent commuter bicycle; bike lock; helmet; bike parking facilities; shower facilities; and general maintenance.

The real costs associated with bike commuting are much less than commuting by car, but those bike commuters should be able to have help with. It is also important to send signals that this not just acceptable, but a good idea. Giving people a little financial incentive is another step in the right direction.

How much do employers and employees save?

Employees and employers save all income and payroll taxes on the amount of money provided for qualified transportation fringe benefits for commuting. In the case of the bike provision up to $20 per month ($240 per year) can be provided tax-free for bike commuting. Due to the tax savings, employees can save in annual commuting costs, while employers save on Federal and State income taxes; Social Security (FICA) taxes paid by both employers and employees, and unemployment, disability, workman's compensation and retirement costs driven by salary.

 

Why Would An Employer Provide Qualified Transportation Benefits such as the Bicycling Benefit?

Employers sensitive to tax savings, employee morale, improved recruitment and reduced turnover are prominent fringe benefit providers. They have found that it enhances their benefits package without increasing overall compensation costs. Employers reduce FICA and other payroll-related costs to subsidize employee commuting costs. Since it is extremely popular with employees, it is an effective way for firms to indicate their concern for the environment. Employers that provide transportation fringe benefits have noted reduced stress from not driving, increased job satisfaction, improved on-time arrival and enhanced productivity. It also keeps an employer’s benefits package competitive.

Who can participate? Are any employers too large or too small for the program?
All types of employers from single person offices to large businesses with multiple locations and from every industry category in the private, public and non-profit sectors have the option to offer qualified transportation fringe benefit to their employees.

Do I need to keep detailed records?

Currently there are no complex record keeping requirements for other qualified transportation benefits such as the transit benefit. No special IRS reporting, such as W-2 or 1099 statements, is required, we expect the bike benefit to fall under the same provision. (If an employer wants to report pre-tax deductions on W-2s, box 14 can be used.)

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