Important Changes for Transportation Plans
September 16, 2008
More employers may want to consider transportation plans, based on two recent developments and the continuing high cost of gasoline.
Almost two years ago, the IRS clarified how debit cards should be used for Section 132 Transportation Plans. These rules, issued in Revenue Ruling 2006-57, were supposed to take effect on January 1, 2008. In 2007, Notice 2007-70 delayed the effective date for one year. In September 2008, Notice 2008-74 delayed the effective date one more year to January 1, 2010.
The rationale is that the IRS recognizes that transit systems need additional time to comply with the rules in Revenue Ruling 2006-57. This is good news for employers because the practical effect of the rules was going to eliminate most debit card use for transit cards as of January 1, 2009. Now, there is another one-year reprieve.
Here is the logic. Cash reimbursements are permitted for transit passes only if vouchers are not "readily available" for distribution to employees. Two types of cards are acceptable as vouchers and thus do not require substantiation:
- Smartcards (plastic cards containing a memory chip that stores the serial number of the card and the value of the fare media stored on the card)
- Terminal-restricted debit cards (cards restricted for use only at terminals selling fare media)
These types of cards must be restricted to the purchase of transit-system fare media.
Merchant category code (MCC)-restricted debit cards (cards that can be used only at merchants with transit-related MCCs) are also acceptable. However, they are not considered to be vouchers. Here is the catch. MCC-restricted debit cards cannot be offered where vouchers are readily available and vouchers are readily available in practically all metropolitan areas. In addition, stringent substantiation and certification procedures must be followed when MCC-restricted debit cards are used.
A copy of the Notice is available on the IRS Website.
In other related news, San Francisco has taken the lead again in addressing employee benefits. Last year, it was the Health Care Security Ordinance, which mandated health coverage for many employees of private employers. In August 2008, the city passed an ordinance requiring employers to offer employees at least one of three commuter benefit options:
- Directly pay for employees’ transportation expenses
- Provide transportation through vanpooling
- Establish a Section 132 transportation plan, which is likely to be the most commonly selected option
The ordinance takes effect in late December and applies to San Francisco employers with 20 or more employees and employees who work at least 10 hours per week. The goal is to reduce greenhouse gas emissions. This ordinance may start a trend among other major cities that are seeking practical solutions to pollution problems.
Infinisource can assist employers in a variety of ways. We offer Transportation Plan administrative services and will be offering a webinar on the subject on Wednesday, October 22, 2008. For more information on our services, you can go to the Products & Services section of Infinisource’s website, www.infinisource.net. For more information on the webinar, you can go to the Seminars and Webinars section of the same web site.