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Qualified Transportation Fringe Benefits in the Time of COVID – IRS Provides an Overview on Treatment of Unused Amounts and Changes to Elections

Prior to the pandemic, many employees used qualified transportation fringe benefits, such as receiving mass transit passes or paying for on-site parking on a pre-tax basis, to help defray the costs of getting to the office. As a result of the pandemic, many workers are working from home, with no need to pay for on-site parking or reap the benefit of employer-provided mass transit passes. The pandemic has also caused some employees to change their mode of transportation, with many deciding to forgo the use of mass transit to drive their own vehicles to work.

A recent IRS information letter outlined some options available to employees whose use of qualified transportation has changed throughout the course of the pandemic. Under the example in the information letter, an employee was no longer using mass transit, and so, no longer needed to use compensation deductions to pay for mass transit passes. Instead, the employee was driving his own vehicle to work and, therefore, needed to use any deductions to pay for qualified on-site parking. The IRS clarified in the information letter that the rules under Section 132 of the Internal Revenue Code allow employees to carry forward unused amounts to the next period (for instance, to the next month) or to use unused amounts to pay for other types of qualified transportation fringe benefits available under the employer’s program.

Employers should consider reviewing their qualified transportation fringe benefit programs to determine whether they are designed to permit such flexibility. Furthermore, employers may want to consider reaching out to employees regarding unused benefits and, as remote work continues into 2021, the possibility of changing their elections if their needs for qualified transportation fringe benefits have been eliminated or modified as a result of the pandemic.

The information letter is available here.

The lawyers of our Employee Benefits and Executive Compensation Practice Group are readily able to assist companies on a nationwide basis with implementing sophisticated benefit plans and providing answers to their most challenging compensation issues. Additionally, our lawyers are well aware of the daily employee benefits challenges facing companies of all sizes and are capable of helping in-house lawyers and human resources personnel with the day-to-day advice and guidance necessary to properly administer employee benefits plans.

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