IRS Confirms Options for Unused Commuter Transit Benefits

AT A GLANCE

A new IRS Information Letter confirms that unused transit and parking benefits:

• Can remain in the designated account for future use; or
• Be applied to another qualified transportation fringe, provided the statutory limits are not exceeded; but
• Cannot be refunded to the participant.

Unused Qualified Transportation Plan Funds

In IRS Information Letter 2020-0024, the IRS responds to a question about rolling over unused funds in the participant’s transit account into the participant’s parking account. The letter confirms that unused funds can remain in the existing account to be used in the future as long the participant remains employed by the employer. Additionally, the IRS explains that the unused funds can be applied to another qualified transportation fringe benefit, assuming the other benefit is offered under the plan and doing so would not result in exceeding the monthly maximum. This means, for example, unused transit benefits could be rolled into a participant’s parking account balance if the monthly limit of $270 is not exceeded. Finally, the letter restates the rule that unused amounts cannot be refunded back to the participant.

Next Steps

The COVID-19 national emergency has left many plan participants with a surplus of unused transit and parking funds. While the information letter does not provide any new relief, it may be useful to remind participants of the available options. Plan sponsors should also check with their plan administrators, like TPAs, to find out how participants can request a balance transfer.

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.