Qualified Transportation Fringe Benefits: All Your Options Explained

In this article, we breakdown QTFs and what they mean for your organization

5
 min. read
November 17, 2021

Look online, and you will find a lot of information about qualified transportation fringe benefits (QTFs). Unfortunately, all of this information can be a bit confusing. 

Lucky for you, we took the liberty to highlight what these benefits are and what they mean for your organization. We also briefly touch on the benefits they offer you and your employees. 

Most importantly, we list the common types of QTFs out there so you know your options as an employer. 

What Are Qualified Transportation Fringe Benefits?

QTF benefits aim to provide tangible tax incentives to employees that use mass transportation to commute to work. By establishing QTFs, lawmakers hoped that these tax incentives would help ease traffic congestion and even lower air pollution.

This voluntary benefits program allows employees to reduce their monthly commuting bills. You can exclude any expenses incurred when transiting, vanpooling, bicycling, or other work-related parking from employees’ gross incomes. Obviously, though, these expenses are still subject to federal taxes

With QTF, employers can also cover expenses associated with employees’ transportation. Employers can either offer cash reimbursements or provide employees with transit passes, tokens, and fare cards or vouchers. 

Today, the IRS recognizes the following as QTF benefits:

  • A transit pass
  • Any qualified parking
  • Transportation in vehicles between the employee’s residence and place of employment
  • Any qualified bicycle commuting reimbursement

Are Qualified Transportation Fringe Benefits A Requirement By Law?

Qualified transportation fringe benefits enable employees and employers to use pre-tax dollars towards their commuting costs. Generally, these benefits are entirely optional. 

Employers do not have to offer them. However, in some cities with high commuter populations, local laws make it mandatory for employers to offer the benefit to their employees. 

Are Qualified Transportation Fringe Benefits Deductible?

Today, the IRS is pretty straightforward when it comes to DTF deductions. The Tax Cuts and Jobs Act states that you cannot make deductions for QTF expenses. It also does not allow deductions for certain costs of transiting between an employee’s place of employment and residence.

This means that according to the Tax Cuts and Jobs Act of 2017, employer-provided qualified transportation fringe benefits remain tax-free for employees. These benefits are no longer deductible for employers.

Yet, employers may still make deductions in some instances for parking. However, they may not deduct parking provided on a pre-tax basis and under a salary reduction agreement.

What Types Of Qualified Transportation Fringe Benefits Are There?

There are several types of QTF benefits or QTF benefit options. It’s essential to know the differences between them and their monthly values. It’s vital to keep an eye out for updates to these monthly values, as they get updated frequently.

The most common types of QTF benefits are as follows.

Transit Passes and Vanpooling

Regular employees can use employer-provided transit passes. The qualifying passes include fare cards, tokens, or vouchers for any mass transit or private transportation that employees may use.

The Internal Revenue Code allows employers to pay their employees’ transit costs up to a monthly limit. If this amount exceeds the tax-free amount, it should be deducted from the employee’s gross income. 

Today, this benefit amount has a limit of $270 per month.

Employer-Provided Parking

Employer-provided parking refers to parking benefits provided to the employee by the employer. For parking to qualify, it must be near the employer’s premises or at a mass transit point, such as a train station. 

Regular employees can have up to a specific limit in tax-free parking. For 2021, the IRS states that this limit is $270 per month. You can calculate parking benefits according to the standard commercial price for regular parking at either the same location or anywhere nearby.

Bicycle Commuter Expenses

One of the newer qualifying transportation benefits, bicycle expenses, is now also recognized by the IRS. Starting in 2009, the IRS allowed employers to reimburse bicycle commuters up to $20 a month. 

Employees should then use this monthly, tax-free reimbursement for reasonable expenses like purchasing a bicycle, bicycle improvements, repairs, and storage fees.

A qualifying bicycle commuter is an employee that uses a bicycle to commute from and to the place of employment. 

What Are The Benefits Of Providing Employees With QTFs?

There are plenty of valuable benefits in offering QTFs to your regular employees. These fringe benefits may improve employees’ self-esteem, sense of self-worth, and even alleviate common causes of stress.

While any kind of reward scheme can make employees feel appreciated, QTFs go the extra mile to make them feel valued. It’s no secret that a valued employee performs better and is more loyal towards the employer.

It may be a small part of the everyday working experience, but it’s very influential and shouldn’t be underestimated. Taking care of parking or even commuting costs can relieve workers’ tension and help set the right tone for a productive, happy workday at the office.

Final Thoughts

Whether you call it a transit stipend or a QTF, these are some of the more loved benefits that employers can use to retain their top talent. No wonder big companies such as Airbnb, Tesla, Google, Twitter, and Bloomberg all seem to provide their employees with these excellent benefits!