Employers may establish a parking cash-out program whereby employees choose to cash out the value of employer-provided parking, forgo parking, and receive the taxable cash value of the parking, or receive a tax-free transit or eligible vanpool benefit up to $65 per month. The employer transfers its expenditure for the parking space, assuming it is leased, to a direct payment to the employee.
If the employee accepts the cash value rather than a tax-free transit or vanpool benefit, then the employee also incurs payroll and income taxes on the amount. The employer only incurs payroll taxes on the cash value provided. This additional compensation will allow the employee to finance other commuting modes that are not considered qualified transportation fringe benefits, such as walking, bicycling, carpooling, rollerblading, or other means of commuting to work.
Benefits for Employers
Please encourage your constituents, membership, and customers to take advantage of these changes to the IRC. Providing transit benefits in lieu of salary will not increase costs to employers; it will actually reduce their payroll costs since payroll taxes do not apply to these benefit amounts. Additionally, by improving and making employee benefits more flexible, employers will improve their ability to attract and retain highly motivated and well-qualified employees to meet the challenges that lie ahead as we enter the twenty-first century.
Additional information can be obtained via the internet from the American Public Transportation Association. The Federal Transit Administration provides an extensive list of materials, and the Internal Revenue Service also provides guidance.
The pertinent law can be found in Section-132 in the Internal Revenue Code, Title 26 of the United States Code, as modified by the Taxpayer Relief Act of 1997 and the Transportation Equity Act for the 21st Century. IRS Publication 535 also explains the law.