AT A GLANCE
- A new IRS FAQ addresses relief available for qualified transportation fringe benefit plans, specifically, van pools who were unable to meet the Code requirements due to the covid national emergency.
- Under the FAQ, a vehicle used in a van pool will qualify if the employer reasonably expected the vehicle to meet the 80/50 requirement at the beginning of the 2020 calendar year but due to covid it did not satisfy those requirements.
- The IRS FAQ can be found
Relief for Employer-Operated and Employee-Operated Van Pools
Vehicles used in a van pool operated by employees and employers must satisfy certain occupancy and mileage requirements in order for the reimbursements to be eligible for exclusion from income under section 132(f).
Specifically, employer-operated and employee-operated vehicles must have a seating capacity of at least 6 adults (not including the driver), and it must be reasonable to expect that for the year at least 80 percent of the mileage will be (i) for transporting employees between their residences and their place of employment, and (ii) used on trips during which the number of employees transported for commuting is at least 50 percent of the adult seating capacity (not including the driver). These requirements are sometimes referred to as the "80/50 requirement".
The FAQ clarifies that if an employer expected to satisfy the 80/50 requirement for 2020, but due to the covid-19 emergency the 80/50 requirement was not satisfied, then, provided the seating capacity is at least 6 adults (not including the driver), the vehicle would be considered a "commuter highway vehicle" for the purposes of a qualified transportation fringe benefit plan.
If the employer reasonably expected the vehicle to meet the 80/50 requirement at the beginning of the 2020 calendar year, the value of van pool transportation provided by an employer to its employees and cash reimbursements from an employer to its employees for expenses incurred in connection with an employee-operated van pool may be excluded from the employee's gross income as a qualified transportation fringe benefit for the 2020 calendar year, up to $270/month, provided the other requirements of section 132(f) are satisfied.
The FAQ is a welcome clarification for employers who offer commuter benefits. However, the application is limited to employer-operated and employee-operated van pools and not to private or public transit-operated vanpools. Employers should review the FAQ to determine if any adjustments are required to employee compensation prior to December 31. If you need assistance processing a payroll adjustment, please reach out to your Paylocity account manager.
Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.