QUESTION: Our firm’s certified transportation plan permits workers to buy transit passes with pre-tax compensation. Passes are distributed on to workers; money reimbursements will not be allowed. Ought to we require substantiation or certification that an worker is utilizing the move to get to work?
ANSWER: The Code provision authorizing certified transportation plans signifies that the tax advantages beneath a certified transportation plan are for “workers.” And in contrast to the principles governing another fringe advantages (e.g., de minimis fringe advantages), the certified transportation plan guidelines restrict the time period “worker” to common-law workers and sure statutory workers. The time period doesn’t embrace members of the family or others. However neither the Code nor the rules expressly restrict what an worker can do with a transit move after it’s acquired from a certified transportation plan. In reality, the rules clearly state that “[t]right here are not any substantiation necessities if the employer distributes transit passes.” Consequently, absent information of misuse (see under), your organization needn’t require substantiation or receive certifications from workers to show that transit passes had been used for commuting.
Whereas the absence of a substantiation obligation makes it unlikely {that a} plan’s tax-favored standing can be jeopardized by what workers do with transit passes after receiving them, the end result may be totally different if there have been proof the employer knew that passes weren’t being utilized by workers and did nothing about it. In the event you be taught that some workers are making a gift of or promoting their transit passes, you need to seek the advice of with advantages counsel concerning whether or not your plan ought to expressly prohibit these practices, and whether or not further measures ought to be taken to discourage abuse of the profit. These measures may embrace requiring workers to certify that they’re utilizing their transit passes for their very own commuting functions, evaluating transit routes to workers’ commutes, and checking recipients of transit passes in opposition to parking profit information.
You point out that the plan is funded solely by pre-tax compensation reductions. But when your organization now or sooner or later subsidizes the price of the transit passes, it would be best to guarantee that the subsidy is getting used for its meant goal. For instance, some corporations are subsidizing transit advantages to entice reluctant workers out of their properties and again to the workplace after the COVID pandemic. This goal could also be undermined if there are not any obvious penalties for promoting the passes and pocketing the subsidy (and the tax financial savings). Requiring a certification can be a easy solution to discourage abuse of the profit and may also assist guarantee that your organization maximizes the return on its funding within the plan.
For extra data, see EBIA’s Fringe Advantages handbook at Sections XX.E.4 (“Can Workers Let Spouses, Dependents, or Pals Use Vouchers Offered On to the Worker by the Employer?”) and XX.U (“Penalties of Noncompliance”).
Contributing Editors: EBIA Employees.
