Unused Qualified Transportation Benefits Due to COVID-19 Cannot Be Refunded

Introduction

The IRS released an information letter responding to an employee’s inquiry about receiving a distribution of unused funds from her employer’s qualified transportation plan due to commuting changes caused by the COVID-19 pandemic. In their response, the IRS confirmed the long-standing rule that unused transit/commuter funds cannot be refunded to the participant, including any funds that may be remaining due to the pandemic.

"Unused compensation reduction amounts under an employer’s qualified transportation plan can be carried over to subsequent periods and used for future qualified transportation benefits offered under the plan, so long as the employee does not receive benefits that exceed the maximum excludable amount in any month.

However, funds designated as qualified transportation benefits can only be used for qualifying commuting activity and are nonrefundable for any other reason, even where employees no longer need or are ineligible for qualified transportation fringe benefits due to a pandemic event."

Next Steps

While no actions are required at this time, this IRS confirmation can help employers who offer transit benefits address common questions regarding whether unused transit benefits can be refunded.

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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.