They provide as alternatives to private vehicles, taxis and mass transit. Many ride them in urban areas with the hope of reducing traffic congestion, noise, and air pollution. Bike share programs allow for individuals to rent a bike at one docking station, and they can return them to the same station or to a different docking station. Even with all the stated benefits, the IRS believes that these bike share programs are still taxable.
Big thanks to the folks over at PeopleForBikes for creating this infographic on bike sharing!
Many have hoped that the IRS would approve bike share programs as qualifying under the Transportation (Commuting) Benefits Program’s Fringe Benefit Rules for transit.
In Informational Letter 2013-0032, the IRS announced that bike share programs are not “qualified transportation fringe benefits” under section 132 of the Internal Revenue Code. As a result, employers cannot exclude expenses for bike share programs from an employee’s gross income, and the IRS then can tax employees’ incomes without any tax relief to the individuals even though they may have used a bike share program.
Under Internal Revenue Code section 132(a)(5), employers who provide their employees with transportation benefits can exclude those benefits from their employees’ gross incomes if the benefits are “qualified transportation fringes.” 26 U.S.C § 132(f).
Employees like these qualified transportation fringes because they are perks, which the IRS cannot tax. When analyzing benefits to employers, BikePortland.org stated “it’d be one more way companies can cut their parking costs and encourage a more physically active workforce.”
The section 132(f) exclusion for qualified transportation fringe benefits applies to:
- Transit passes (for travel by bus, rail, ferry, or commuter van)
- Qualified parking
- Qualified bicycle commuting reimbursements
- Transportation in a commuter highway vehicle (vanpool arrangements)
In 2013, employees can deduct up to $245 per month in transit and parking benefits from their income. If employees use their bikes to go from home to work and back, they can dock up to $20 a month for reasonable expenses from their income with the “qualified bicycle commuting reimbursement.”
However, the IRS reasoned that bike share programs are not mass transit facilities, and the programs cannot function as transit passes. Similarly, the programs cannot qualify under the “qualified bicycle commuting reimbursement” because the IRS decided that bike share users do not have the same expenses that normal bike owners do have for the purchase, repair or storage of their bikes.
The agency concluded that the bike share programs cannot qualify for the favorable tax treatment, which certain other types of transportation receive, without Congressional action.
Congressman Earl Blumenauer to the rescue?
The former Portland transportation commissioner, Rep. Blumenauer (D-OR), is co-sponsoring the bipartisan, Transit Parity Act, with Rep. Michael G. Grimm (R-NY), Rep. James P. McGovern (D-MA), and Rep. Peter T. King (R-NY) to officially recognize bike sharing as the newest category of public transit, at least in the eyes of the IRS.
Rep. Blumenauer stated in a press release that, without the passage of this act, commuters taking public transportation will see their tax benefit cut almost in half to $125, while those who drive and park will maintain the current $245 tax benefit. On January 1, 2014, almost 3 million of America’s commuters will face a tax increase unless Congress acts. The Transit Parity Act would cap both the travel and parking benefits at $220.
Don’t worry, his proposal does not involve raising personal income taxes; instead, he would like employers to reimburse employees for using these bike share programs like the rest of the section 132(f) qualified transportation fringe benefits.
Rep. Blumenauer criticizes the current bicycle commuting reimbursement since it “assumes that every commuter travels to work using exactly one mode, then turns around and goes home without making other trips.” He finds fault with the fact that an employee can’t claim the same reimbursement in combination with any other commuter benefit.
“A system where workers have access to myriad transportation options creates more livable, healthy, and productive communities. By helping protect commuters’ choices, and preserving equity between those who drive and those who take transit or vanpool, we can avoid a tax increase on millions of families, and continue to give workers the option to use a transportation mode that increases economic productivity, reduces congestion, and is friendlier to the environment,” said Rep. Blumenauer.
He further points out that we need to accommodate the fact that people today take multiple modes of transportation as opposed to the mono-modal method of the past. People no longer go straight from home to work and vice versa using one mode of transportation without making any other trips along the way.
Mass transit, like the bike share programs, benefits our environment, reduces wear and tear on our roads and bridges, eases traffic congestion and saves energy. However, it seems as though the government wants to reward those who congest and destroy our roadways and wants to disregard those making a honest effort to make our country healthier and less dependent on cars.
Like the IRS letter stated, the ball is now in Congress’ court, and they have the power to make the necessary changes. As the Represenatives reiterated in their press release, “transportation is the second largest household expense for American families, and currently Congress provides a tax credit to commuters to help account for parking and transit costs. However, without congressional action, on January 2th, the cost for those who use the transit benefit will practically double.”
JDKatz, P.C. is a full-service law firm focused on tax law, business and transactional law, estate planning and elder law. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys, or visit http://www.jdkatz.com.