Clarification from IRS on Mass Transit Passes

Nov 26, 2014

The Internal Revenue Service has released a new revenue ruling on mass transit passes provided as fringe benefits to employees, how they are paid for and/or reimbursed.

Reveue Ruling changes what the IRS’s earlier guidance on employee qualified transportation fringe benefits such as smartcards, debit or credit cards, or other electronic media.

This new revenue ruling also clarifies the use by employees of debit cards for the charges of mandatory shipping that comes with the transit passes.

The revenue ruling states that after Dec. 31, 2015, employers can no longer provide qualified transit fringe benefits under a bona fide cash reimbursement arrangement in cases in which a terminal-restricted debit card is the only readily available transit pass in the employer’s geographic area. A terminal restricted debit card can only be used to purchase fare media on the local transit system. The Amounts that are stored on these debit cards are excludable from the employee’s gross incomes.

There are no requirements needed if an employer administers a transit pass (including a voucher or similar item) in-kind to the employer’s employees. Employers have the choice to distribute these as fringe benefits or in-kind items.

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