work isn’t that easy…yet.
(Photo © J. Maus)
I’ve gotten many emails over the past few weeks wondering why I haven’t covered the Bike Commute Tax Benefit that became law on January 1.
One reason is that I’m just not all that enthused about it; and it turns out I’m not the only one.
After 7 years of effort by advocates and bike-friendly politicians, the bike commuter benefit was ushered through as a way to curry favor and votes for passage of the controversial, $700 billion financial bailout package. To make matters worse, the benefit is only good for $20 per month (a pittance compared to the benefit for driving a car), you can’t get it if you also receive the transit benefit, and to add insult to injury, no one seems to be able to figure out exactly how to implement it.
And it’s not just me. Professional bike advocates all over the country are having a hard time explaining to their members how to use it. A page about it just published on the website of the San Francisco Bike Coalition says it’s “a headache” to implement (they also published a helpful summary of it, which I’ve pasted below).
Wondering if there was a chance to amend and/or change the law, I contacted someone at Congressman Earl Blumenauer’s Portland office. To my surprise, it turns out they’re already on the case.
“Right now, it’s one or the other, and that’s a shame.”
— Meeky Blizzard, an advisor to Rep. Earl Blumenauer
According to Blumenauer’s Advisor for Livable Communities, Meeky Blizzard, policy aides in their D.C. office are working on a bill that would allow an employee to receive benefits for both bikes and transit. “Right now,” she said, “it’s one or the other, and that’s a shame.” Blizzard also confirmed that they are working to improve the “provisions for how to administer the benefits” (meaning, make it easier to figure out how to get your money) and are looking into the possibly of increasing the dollar amount.
At this point, details as to how and where these changes might fit in remain to be seen, but Blizzard says “we’re working on it.”
If you’re wondering how to implement the Bike Commuter Tax Benefit, I’ve pasted text below that I took from the website of the San Francisco Bicycle Coalition (emphasis mine). Also check out the FAQs at BikeLeague.org.
The Commuter Benefit is real and in effect — it is the same as all other pre-tax benefits for transit and parking currently available by the IRS. (See Section 2, “Transportation (Commuting) Benefits” of the “IRS Publication 15-B (2009), Employer’s Tax Guide to Fringe Benefits” – online here)
Employers can simply write off the $240 in Box #14 of the W-2 form at the end of 2009 (along with all other transit and other pre-tax benefit calculations).
Of course, this isn’t the way many HR departments like to operate– they prefer to contract the processing out to Accor Services (a private company who provide the ‘Commuter Checks’ many folks are familiar with) or a competitor. Accor has contracts with each of the Transit Agencies to accept and reimburse them for commuter checks once used, and then provides employers with each employee’s deduction amounts at the end of the year to include in the W-2 Box #14.
And that’s really where the sticking point lies– Transit Agencies are, obviously, run a bit a differently than any small scale bike shop (contracts, accounting departments, etc.) — let alone finding and contracting with each and every shop in the nation isn’t an easy feat for Accor services. So, unfortunately, many HR departments may choose not to implement this process until the private contractors like Accor offer their services for the bike benefit.
Everything that can and will be done at the Federal level is done. It’s law and it’s good to go– it’s just a headache to do. The SFBC has been working closely with the American League of Bicyclists and local shops to try to implement this locally as best as possible and will continue to do so.
We, also, hope to see this implemented and effective soon and if your employer chooses to implement it independently, please let us know how it works. Once we have more solid details, we’ll be sure to let all of our members and interested employers know!
Has your employer signed you up for this yet? Are you a business owner who has looked into this? If so, please share your experiences in the comments below.
UPDATE: 1/28, 11:05: See comments below, like this one for more information about how this new tax law applies in Oregon.
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looking forward to seeing this ‘incentive’ improved…
Well I work in the bike industry for a pretty strong accessories company. I asked them to consider this new incentive and after a couple minutes they had more excuses why they won’t offer it “than a senator with his hand in the cookie jar”
It is so complicated and leaves the employer so open to losing money they can’t back peddle fast enough!
Besides that, its open to such horrible interpretation that what employer is ever going to give more than a couple minutes of thought!
My employer thinks they only pay you based on if you ride to work 5 days a week… and it clearly states that the incentive is for an average commute of 3 days a week.
It is obvious this is just more capitol hill “Pork”!
I have a feeling that my employer would laugh at me if I brought this up. and the way it’s set up to be used seems like it’s designed to be difficult to get going. as long as I’m employed where I’m at currently, I don’t see myself benefiting from this at all.. 🙁
So,
If I purchase a $200 set of wheels for my commuter bike, can I claim that @ $20 a month over the course of the year?
Or do only get to claim $20 for the first month and whistle for the rest?
Just to be clear– I’m (the person who wrote the SFBC webpage) am not a tax expert, so the bolded statement regarding box 14 is not for certain. Be sure to check with your organization/company’s accountant before confirming these benefits.
I’ve heard that some of the transportation benefit providers are wanting to test this out, and are looking for current clients interested in it– so if you have a current contract with one of the many providers, have your HR folks give them a call!
Already get paid to ride to work…wont’ affect me much. 🙂
I am a small business owner (S-corp – similar to partnership) who bike commutes.
My accountant said I cannot take advantage of this benefit.
This is what she told me:
“This is a deduction for an expense, not a tax credit. First you have to incur an expense, then pay a reimbursement to the employee. However, as an S corp shareholder you cannot get fringe benefits. Bottom line, this does not work for you. Sorry!”
My office implemented the program, but I decided to pass on it. Being allowed to take $20 tax free per month isn’t worth the headache if I don’t manage to spend that much money on my bike. If I were buying a new bike, and I could take $100 per month, I would be much more likely to use it.
I’d also like to see some sort of business tax incentive for including bike facilities. Showers, lockers, racks. My office has these, and I don’t think that I would bike commute if I didn’t have them.
Here’s what I don’t get. To get this benefit, I have to sign an affidavit of my bike commuting habits.
However, if I opted for the Trimet pass all I have to do is purchase it and then submit it for reimbursement. Then I could sell it on the street for a $10 or $20 discount.
So, a bunch of red tape for $20/mth or none for $50/mth. Hmmm….???
Why don’t they simply abolish commuter tax benefits altogether, for all modes? That would benefit inexpensive commuting modes the most, ie walking, cycling and public transit. It would inhibit sprawl and promote sustainable development.
Less paperwork for everyone, and fewer cars on the road!
Thanks for publishing this article, Jonathan. It’s good to hear that others are struggling also with how to implement this type of benefit.
My question for Congressman Blumenauer (and his staff) is how can we find a way to allow tax-exempt employers to take advantage of this benefit? Here at PSU, we have tons of bike commuters on staff who would love to partake of this incentive plan, and tons more who would bike more frequently if this type of incentive were provided. A tax-free deduction from the employees’ paycheck (as described on the League’s website) just isn’t the same and definitely less than what our bike commuters have been hoping for from this bill.
Pardon my ignorance (And I truly mean this)
What tax benefit am I getting for driving my car to work? I’ve heard it mentioned several times to on this site and I have no idea what you’re talking about.
I drive myself and my fiance – I don’t think he gets hurt for not driving to work..
Anyway, I really don’t know, that’s why I’m asking.
current law says people who drive a car to work can get a “fringe benefit” of $230 per month to offset parking costs.
Also, if you use a carpool (car with 6 or more seats), you can get $120 per month.
As far as I know, the auto “fringe benefit” works a lot like the prepaid medical savings plan most of us are offered by our employers. Money is taken out of your paycheck pretax, and saved to reimburse you for appropriate expenses. Here in my office, people use this for downtown parking. Most monthly parkers can pay their monthly fees pretax using the benefit plan. The plan doesn’t cover gas or insurance, because those are items used for normal driving and are hard to separate from commuting.
We’ve been trying to implement this at my firm since it was announced. Our very smart and capable HR person simply cannot figure it out. She’s tried to get help from the LAB but what they’ve sent hasn’t really clarified things. We are a bike-friendly business and even we can’t figure it out – what hope is there for employees who work at giant corporate firms? I’m pretty disappointed.
Maus..sure the law says that, but do you have any data on exactly how many people are receiving such a benefit?
My guess…not many.
I asked my HR dept about getting this benefit implemented with what turned out to be a back and forth(and back and forth) email between me and our HR director. At first I had to explain it, she had never heard of it..then I promptly received 3 different excuses of why we couldn’t implement it right now. I may try again later but I’m not sure it is worth the effort.
comment 10 is exactly on point. if it costs too much to park your car in a garage near your workplace, maybe you should think about taking the train or the bus or a bike. we have to stop subsidizing the car culture, and this is as good a place as any to start.
I appreciate the effort but the way I understand the legislation it will certainly not benefit me. I commute by bike roughly 90% of the time and I don’t see how I can take advantage of this legislation.
I work for a tax-exempt nonprofit. There’s absolutely no tax benefit to my employer. They’re not going to implement this.
Oh my. The confusion in these comments shows how ridiculously complicated taxes are.
This is not a tax credit for your or your employer. It is a tax deduction for your employer, just like wages and other business expenses are deducted to determine their net taxable income. It is not free money to your employer. If they pay you an additional $100 in the form of this benefit, they get a $25 deduction if they are in the 25% tax bracket. So it costs them $75 to pay you $100 in this example. See a more detailed example below.
The commuter benefit is nontaxable (exempt) income to you, similar to if your employer simply paid you additonal taxable wages, and then you got a deduction for the same amount. The income and deduction would offset each other, and it is essentially tax-free income.
There is absolutely a benefit to tax-exempt (non-profit) employers. Everything discussed above is in regards to income taxes. Well, this benefit is also exempt from payroll taxes, which tax-exempts are subject to. Generally, on a benefit of $100, you would pay about $8 in payroll taxes (as withholding) and your employer would pay about $8 in payroll taxes.
Besides, there are many reasons employers offer fringe benefits other than immediate money savings to them. Many fringe benefits are offered because employees ask about them and demand them, and such benefits are part of the overall compensation package intended to keep employees satsified and with the company.
Unless you are trying to kill time, stop reading here.
Here is a quick example assuming 25% fed tax rate and 5% state tax rate for all parties, and 8% payroll taxes for both employer and employee. $100 is paid as normal compensation.
Employer:
Compensation paid – 100
Fed tax savings – (25)
State tax savings – (5)
Payroll taxes paid – 8
Fed benefit of payroll tax deduction – (2)
Net cost to employer – 76
Employee:
Compensation received – 100
Fed tax paid – (25)
State tax paid – (5)
Fed benefit of state taxes paid – 1
Payroll taxes paid – (8)
Net benefit to employee – 63
If 100 is instead paid as a nontaxable fringe benefit, the employer net cost is 70 vs. 76. Just remove the payroll tax impact.
If the employer is tax-exempt, the cost of taxable compensation would be 108, and cost of nontaxable fringe benefit would be 100. The only difference is payroll taxes.
If 100 is instead paid as a nontaxable fringe benefit, the employee net benefit is 100 vs. 63. Just remove all of the taxes.
This is about as exciting as it gets.
I know that the 4J school district (in Eugene) is considering it, but I’m not overly optimistic. I shot a few e-mails off earlier in the month to people better capable than me to help get the ball rolling and everyone seemed enthused, but who knows if anything will ever happen.
Hopefully it will be made simpler so getting huge red-tape machines like a school district to adopt it will be easier.
My employer looked into this for about 2 seconds, realized that we’d have to give up our (very popular) transit pass program, and then stopped.
Semi-related: the ideal number of parking spaces for an office building is 4 spaces per 1000 sq feet. We are right on the edge of that. On one hand, they want to want to put in a bioswale to see if we can hit LEED-EB platinum, (we are gold right now,) but that will remove some parking, and at some point they might sell the building, and not having enough parking spaces will hurt the selling price. Nevermind that we are across the street from MAX, nevermind that we have a bike lane on the street in front of the building, never mind that we don’t actually have a parking shortage right now; going below 1 space per 250 sq feet will hurt the selling price…
Thanks, Schrauf, for the helpful breakdown.
For those in charge of ‘lobbying’ their HR departments for this type of program, it should also be noted that there is an opportunity (read: maybe!) for recouping a significant portion of the cost of paying this benefit to employees through the Oregon Business Energy Tax Credit program (25-35%) . However, for those not familiar with the BETC process, I would recommend accounting for staff time to do all the paperwork required to utilize these tax credits. More info on the BETC program can be found here:
http://www.oregon.gov/ENERGY/CONS/BUS/BETC.shtml
Follow the link for Transportation Projects. The relevant section reads:
Employer Financial Incentive Programs
To encourage the reduction of drive-alone vehicle miles, employers may provide financial incentives to an employee or student. Examples include programs where employees log the days they walk, bike, carpool, vanpool or telework instead of driving alone to work. When they log 45 days of using alternative ways to get to work, they are eligible for vouchers at local stores.
Beware: this could further complicate that conversation you are having with your HR staff, so choose wisely…
As a payroll professional, I STRONGLY URGE EVERYONE TO READ THE IRS PUB 15B, page 19-20 for the actual information regarding this.
Download for FREE at http://www.irs.gov/formspubs/index.html?portlet=3
*** There is NO SPECIFICATION for how many days in a specific month you have to ride to qualify. It only says “REGULARLY USES THE BICYCLE FOR A SUBSTANTIAL PORTION OF THE TRAVEL BETWEEN THE EMPLOYEE’S RESIDENCE AND PLACE OF EMPLOYMENT”. Nowhere does it say you have to ride 3, 5, 2, 4, X days each week to get this.
The way this benefit is written, there is a LOT of leeway in how any individual company will implement it. Basically, each employer gets to write up the language for what “regularly” means, what “substantial” means, etc. My employer is letting me write it up myself, with the input of the 2 others who ride here at our office.
The exerpted text that JMaus has included at the end of his article is NOT the only way to handle this. This is one way to handle it. Most private entities will probably choose to handle it internally or through their existing payroll processors.
Generally speaking, the qualified bicycle commuting reimbursement is not exluded from an employee’s wages, even though the other qualified transportation fringes are exluded. That’s lame.
And yes, you can’t get the bicycling fringe if you get any of the other transportation fringes. Also lame.
As for the treatment on the W2: since the bicycling fringe apparently is a taxable reimbursement, that means it gets added to boxes 1, 3, 5, and 16, with applicable taxes. You MAY include it in box 14, but it is NOT REQUIRED to do so. Your employer will need to report it to their payroll processor quarterly or annually, and it will get added to your wages as a taxable item, with associated taxes occurring at that time.
JMaus, there are probably a number of us cyclists who work in this field who can provide more illumination, plus we’re local. California has a lot of strange and stringent payroll tax laws that have absolutely nothing to do with Oregon and Washington, and may change the way companies there implement this fringe benefit.
I’m waiting for my Walk Commute Tax Benefit . . . still waiting . . . .
Kt,
thanks for your input. your comment about the difference between tax law in CA vs. locally here in OR is a good one and that didn’t even cross my mind.
Thanks for the useful comments! I’m starting to approach my HR person about this (my company offers the parking and transit benefits, so there’s hope for the bike benefit), and I’m looking for as much information as possible.
Kt and other cycling payroll professionals, any advice you can give will help the non-accountants in the crowd.
Our company uses ADP (like thousands of others) and ADP has not made any accommodations to their system to implement it, so it’s not going to happen.
My employer is participating in this program, and I’m happy for it. We’ve decided to give it to employees who commute by bicycle any portion of their trip, at least half of their work days in a month.
I don’t know much more about the specifics of how the tax benefits to the employer work, but I’m interested to leran whether they get a 1-for-1 credit, or if it really just does reduce their payroll taxes by 8% of $240 per year. That’d be pretty low.
“…wondering why I haven’t covered the Bike Commute Tax Benefit…One reason is that I’m just not all that enthused about it…”
Umm Jon, that’s censoring, not reporting.
yeah.. i know. terrible isn’t it?
i have a million stories in my head and on various lists here and there… when I’m less excited about something, it just doesn’t bubble up to the top as quickly. what I can say.. i am human.. not a journalistic robot.
thanks for the feedback.
For those of you who work for companies who use Paychex, ADP, Prime Pay, etc:
If you want this fringe benefit, you’re going to need to push for it. Read up on this fringe benefit. The more people your HR dept– and upper management– hears from, the more likely they are to push their payroll processing company for it. The more companies push for it, the more likely the payroll companies are to do something about adding it.
For those of you who work for smaller companies: read up on this fringe benefit. Discuss it with your boss. Figure out how to implement it; it may be as easy as adding it to the payroll at the end of the quarter as a reimbursement to be added to the gross. I don’t know. Neither do you.
If you work for a company that does payroll in-house, see if there’s a way they can get creative, legally, to make this happen. It doesn’t seem like it would be a hard thing to implement, if the benefits policy was updated to include it.
All that aside: READ THE PUBLICATION. The IRS pubs are not secret tomes of limited access. The more you know, the easier it may be to implement. At the very least, you can have a knowledgeable discussion with HR, Management, and Payroll about it.
Now, for the CYA part: your situation may vary from my scenarios, above. My advice here is not to be construed as legal and binding and in any way to be taken as “gospel”. This is all my opinion, coming from the point of view of someone who has taken classes, been certified, and takes continuing education in the subject of payroll. Every single payroll professional will have their own take on this subject, and some of us may agree or not with each other.
Oh, one more thing:
JMaus probably hasn’t covered it as extensively as some would like because, let’s face it, tax stuff is BORING.
🙂 Trust me, I know!
It’s not censoring. That’s when you know a story is important and you block publicity about it for a political agenda. This is just editorial discretion.
What about government employees? There is no incentive in the current bill for government agencies to include their employees in this. This is an issue that needs to be fixed!
My large hi-tech employer (1,500 employees locally, 3,000 worldwide) doesn’t offer access to _any_ of the transportation fringe benefits.
IMO, these bills should really be implemented as a personal deduction; otherwise they’re basically useless.
I approached our Parking & Transportation folks about this. Their response floored me. It was pretty much “No – we have no plans to offer incentives to bike commuters. In fact, we are trying to figure out how to charge for the use of bike lockers/racks.”
And here I thought the City had tasked large employers with a mandate to reduce vehicle miles driven…..