Bicycle Commuter Benefit
Commuter benefits provide ways for employers and employees to lessen the financial burden of getting to and from work. Since the creation of commuter tax benefits in 1984, these tax benefits have primarily benefitted people who drive to work, make higher than average incomes, and work for large organizations. According to TransitCenter, a non-profit transit advocacy organization, only 7% of the American workforce has access to subsidized commuter benefits and only 2% of the workforce uses them.
When commuter benefits for transit and bicycling are offered, employers can see significant savings and benefits from people utilizing more active modes of transportation. Biking to work is a great way for employees to meet the CDC’s physical activity guidelines of at least 150 minutes of moderate cardiovascular activity per week, and studies support biking to work improving employee retention and productivity. Due to the benefits associated with biking to work, many employers offer incentives to bike to work even if they do not offer the Bicycle Commuter Tax Benefit.
The Bicycle Commuter Tax Benefit is a benefit that can only be offered by employers. As of 2018, the only possible tax benefit of the Bicycle Commuter Tax Benefit is the deduction for costs associated with the benefit, which can be claimed by an employer (under Sec. 13304(c)(2) of the Tax Cuts and Jobs Act). Any reimbursement given to employees under a Bicycle Commuter Tax Benefit program is taxable as income to the employee. The provisions of the Tax Cut and Jobs Act related to the Bicycle Commuter Tax Benefit expire in 2026.
The League of American Bicyclists would prefer a commuter benefit system that prioritizes the needs of lower-income workers and provides parity or incentives for active transportation, such as bicycling and walking. Our current commuter benefit system primarily serves higher-income workers and primarily provides incentives to drive to work.
The resources below are meant to help employers interested in utilizing the Bicycle Commuter Tax Benefit as it exists under federal law. Given the limited tax benefit under current law, employers who are interested in promoting biking to work may want to participate in our Bicycle Friendly Business program, which provides a more holistic approach to making it easier for employees to bike to work – including other incentive programs.
On January 1, 2009, the qualified bicycle commuting reimbursement was added to the list of qualified transportation fringe benefits covered in section 132 (f) of the Internal Revenue Service Code.
The Bicycle Commuter Act was in front of Congress for seven years, and finally passed as an inclusion to the larger Renewable Energy Tax Credit legislation in 2008. The original intent of the provision was to provide a simple, equitable solution to put cyclists on the same footing as people who receive qualified transportation benefits (QTF) for taking transit or parking their cars at work. Under the original intent the bike commuting benefit would be treated the same as the other QTFs.
When enacted, the Bicycle Commuter Tax Benefit had a number of limitations not found in other QTFs, including:
- the Bicycle Commuter Tax Benefit could not be used in conjunction with other QTFs - making it difficult for bicyclists who use both their bike and transit to claim the Bicycle Commuter Tax Benefit;
- the Bicycle Commuter Tax Benefit could only be funded by the employer, unlike other QTFs that can be funded by an employer or employee on a pre-tax basis;
- the Bicycle Commuter Tax Benefit required a minimum amount of bicycle use before a person was eligible for the benefit, unlike other QTFs that are only based upon expenses with the commute mode; and
- the Bicycle Commuter Tax Benefit was worth less than 10% of the value of other QTFs - both the transit and parking tax benefits have a higher monthly value than the annual value of the Bicycle Commuter Tax Benefit.
In 2017, the Tax Cuts and Jobs Act suspended the Bicycle Commuter Tax Benefit as it relates to the exclusion of qualified bicycle-related reimbursements from the income and payroll taxes relevant to an employee. During the consideration of the Tax Cuts and Jobs Act, the Joint Committee on Taxation estimated that the cost of the Bicycle Commuter Tax Benefit to the public was less than $5 million per year. The estimated cost of the exclusion of parking benefits from income was estimated at over $7 billion per year by TransitCenter.
On January 1, 2009, the bicycle commuting reimbursement was added to the list of qualified transportation fringe benefits covered in section 132 (f) of the Internal Revenue Service Code (26 U.S.C. sec. 132(f)).
SEC. 211. TRANSPORTATION FRINGE BENEFIT TO BICYCLE COMMUTERS.
(a) In General- Paragraph (1) of section 132(f) is amended by adding at the end the following:
(D) Any qualified bicycle commuting reimbursement.
(b) Limitation on Exclusion- Paragraph (2) of section 132(f) is amended by striking "and" at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ", and", and by adding at the end the following new subparagraph:
(C) the applicable annual limitation in the case of any qualified bicycle commuting reimbursement.
(c) Definitions- Paragraph (5) of section 132(f) is amended by adding at the end the following:
(F) DEFINITIONS RELATED TO BICYCLE COMMUTING REIMBURSEMENT-
(i) QUALIFIED BICYCLE COMMUTING REIMBURSEMENT- The term "qualified bicycle commuting reimbursement" means, with respect to any calendar year, any employer reimbursement during the 15-month period beginning with the first day of such calendar year for reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee's residence and place of employment.
(ii) APPLICABLE ANNUAL LIMITATION- The term "applicable annual limitation" means, with respect to any employee for any calendar year, the product of $20 multiplied by the number of qualified bicycle commuting months during such year.
(iii) QUALIFIED BICYCLE COMMUTING MONTH- The term "qualified bicycle commuting month" means, with respect to any employee, any month during which such employee--
(I) regularly uses the bicycle for a substantial portion of the travel between the employee's residence and place of employment, and
(II) does not receive any benefit described in subparagraph (A), (B), or (C) of paragraph (1).
(d) Constructive Receipt of Benefit- Paragraph (4) of section 132(f) is amended by inserting "(other than a qualified bicycle commuting reimbursement)" after "qualified transportation fringe".
(e) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2008.
SEC. 11047. SUSPENSION OF EXCLUSION FOR QUALIFIED BICYCLE COMMUTING REIMBURSEMENT.
(a) In General.—Section 132(f) is amended by adding at the end the following new paragraph:
“(8) SUSPENSION OF QUALIFIED BICYCLE COMMUTING REIMBURSEMENT EXCLUSION.—Paragraph (1)(D) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026.”.
(b) Effective Date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2017.
SEC. 13304. LIMITATION ON DEDUCTION BY EMPLOYERS OF EXPENSES FOR FRINGE BENEFITS.
(c) Treatment Of Transportation Benefits.—Section 274, as amended by subsection (a), is amended—
(1) in subsection (a)—
(A) in the heading, by striking “Or Recreation” and inserting “Recreation, Or Qualified Transportation Fringes”, and
(B) by adding at the end the following new paragraph:
“(4) QUALIFIED TRANSPORTATION FRINGES.—No deduction shall be allowed under this chapter for the expense of any qualified transportation fringe (as defined in section 132(f)) provided to an employee of the taxpayer.”, and
(2) by inserting after subsection (k) the following new subsection:
“(l) Transportation And Commuting Benefits.—
“(1) IN GENERAL.—No deduction shall be allowed under this chapter for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee.
“(2) EXCEPTION.—In the case of any qualified bicycle commuting reimbursement (as described in section 132(f)(5)(F)), this subsection shall not apply for any amounts paid or incurred after December 31, 2017, and before January 1, 2026.”.
A qualified bicycle commuting reimbursement, means any employer, if they chose to do so, may provide a reimbursement of up to $20 per month for reasonable expenses incurred by the employee in conjunction with their commute to work by bike.
Who is Eligible?
As a rule, the qualified 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.
What Costs Are Covered?
The intent of this provision is to help defray some of 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 those costs. Employers might not think this is a huge benefit to them but giving people a little financial incentive is another step in the right direction to build morale.
At this time costs associated with bike share are not reimbursable. A 2013 letter from the IRS expressed the opinion that costs associated with bike share are not costs associated with "the purchase of a bicycle and bicycle improvements, repair, and storage" which are reimbursable under the bicycle commuter benefit. The League has worked with representatives in Congress on how to fix this issue and make bike share costs eligible under either the transit commuter benefit or the bicycle commuter benefit. While that work continues, bike share is not eligible at this time.
What is considered a bicycle commuting month?
A qualified bicycle commuting month is any month in which an employee: (I) regularly uses a bicycle for a substantial portion of the travel between his residence and his place of employment, and (II) does not receive any other qualified transportation benefit for such as transit, and parking.
The League developed reimbursement cards to make implementing the Bicycle Commuter Act in your workplace as easy as possible. Simply sign the pledge on the card that states you commuted to work by bike for at least three days per week, and then staple your receipts to the card. Download all 12 months (pdf):
Please Note: Unlike the other qualified transportation fringe benefits, a qualified bicycle commuting reimbursement benefit cannot be funded through employee pre-tax income, nor can an employee receive both the transit and bicycle QTF in the same month. Click here to read in-depth analysis of the bike commuter provision limitations.
(Legal disclaimer: The analysis provided was written by League legal intern Gregory T. Simmons. It was not performed by a lawyer and is provided only for our readers' interest and information, not as legal advice. Employers, before making any decisions affecting your tax liability, you should consult your accountant or tax legal adviser).
First, talk to your employer and tell them you want this benefit. If there are other bike commuters in your office, tell them to speak up too
If your employer contracts with a Commuter Benefit Provider, ask the person who coordinates these benefits to request enrollment in the bike benefit program. If the provider doesn't offer it, find out if they plan to implement it.
If your employer prefers to manage the qualified transportation fringe benefits (qtfb) in-house, rather than with a Commuter Benefit Provider, the employer can implement a cash reimbursement program.
The key point to consider in setting up a cash reimbursement program is that there is a mechanism for the employee to certify that they will commute to work by bike a substantial portion of the month. For example that could mean three days a week for a full time employee and less for a part-time employee. Employers can best determine what works best for their organization. Additionally, employee keeps their receipts for covered expenses and turns them into the employer for reimbursement up to $20 a month or $240 per year. [As of 2018, all reimbursements are taxable income for employees]
How are companies implementing the benefit?
Companies are finding their own unique ways of implementing this program. At the League we developed a set of monthly reimbursement cards to help track employee commutes. Meredith Corporation developed a set of guidelines to help employees understand the reimbursement program, click here to view their guidelines. To help track employee miles Meredith uses a tracking log.
Intuit has an excellent FAQ on the bicycle commuter benefits for HR employees: https://payroll.intuit.com/support/kb/2000941.html
- RS Publication 15-B (2009), "Employer's Tax Guide to Fringe Benefits" (See Section 2, "Transportation (Commuting) Benefits")
- Edenred Services: Commuter Bicycle Benefit for Employers
- TransitCenter's Who Pays for Parking report - looking at the over $7 billion per year tax subsidy given to parking and how the parking tax benefit (worth up to $260 per month) reduces the effectiveness of any incentive for active commuting provided by the bicycle commuter benefit (worth up to $20 per month).
- Article by the Society for Human Resource Management discussing how employers continue to offer the Bicycle Commuter Benefit although reimbursements are now taxable income for employees.
- Ernst & Young's Guide to the Tax Cuts and Jobs Act - including a discussion of changes affecting the Bicycle Commuter Benefit
- The Center for Urban Transportation Research's table of Commuter Tax Benefits