Federal Law Provides Tax Incentive to Cycle to Work
The Federal Bike Commuter Benefit became effective Jan. 1, 2009 and SFBC Members and Cyclist Commuters across the nation are excited about this development! For the first time, the federal government is recognizing bicycling as a commute option and rewarding those of us who choose the greenest form of transportation.
The Bike Commuter Benefit is real and in effect- but, there are still some issues that need to be worked out to maximize the benefits to cyclists. Unlike other pre-tax benefits for transit and parking and van-pools, the Bike Benefit is only being offered as an employer-paid benefit.
If your employer elects to offer this benefit, you can receive up to a bonus of $20 a month for each month you commute primarily by bike from your employer tax-free, so long as you don't accept any of the other transit benefit. The SFBC is working with Congressman Earl Blumenauer of Portland to pass HR 863, which would allow bike commuters to accept the public transit benefits, and divert the $20 from their own money, rather than requiring it be provided by the employer.
Many employers contract with a Commuter Benefit Provider to coordinate other transportation benefit programs, so have your benefit coordinator call the provider to request enrollment in the bike benefit program. As of April 2009, the SFBC has not confirmed any providers who offer the bike benefit other than Accor Services. But other providers are looking to initiate this program, so call and tell them you want it!
While we hope employers will choose to support their biking employees, the SFBC is hoping for the passage of HR 863 to strengthen this benefit and allow employees to divert their own $20, rather than the current law, which requires the employer pay tax-free $20 bonus to each qualified employee. Be sure to check back regularly to see updates on this important legislation!
How to get the bike benefit at your work:
- First, talk to your employer and tell them you want this benefit. If there are other bike commuters in your office, tell them to speak up too! Employers can defer about about 9.5% of their FICA contribution on the $20 payment.
- If your employer already contracts with a Commuter Benefit Provider, ask the person who coordinates these benefits to request enrollment in the bike benefit program. If the provider doesn't offer it, find out when they plan to implement it- it's law as of January 1, 2009. If your employer is looking for more information, a list of providers is available from the SF Department of the Environment.
- If your employer prefers to manage transit benefits in-house, rather than with a Commuter Benefit Provider, the bike benefit works like other employer-paid transit benefits. (Note: very few employers actually do this in house. Confirm your employers participation before going on a spending spree!)
- Ride your bike for a 'substantial portion' of your commute.
- Accept only the $20 benefit for biking for transit benefits. Unfortunately, the law prohibits people from accepting both the transit benefit and biking in the same month. The SFBC is working to fix this by helping Rep. Blumenauer (D-OR) pass H.R. 863
- Use the money for 'a bicycle and bicycle improvements, repair, [or] storage.' at your local shop!
For more info:
FAQ
Benefits to Employees
You finally get a chance to participate in pre-tax benefit for bicycling. It's about time! While the $20 isn't as much as your driving and transiting coworkers are eligible for, it's a good start. And because this is a pretax benefit, you'll save about 40% on every dollar that you use through this program by not paying taxes. And in some cases your employer may even provide some portion of the cash benefit themselves.
Benefits to Employers
You finally get to offer a pretax benefit for your employees who bike to work. And you'll save about 10% on every dollar that your employees deduct through this program because you won't have to pay payroll taxes.
What's Covered?
The intent of the legislation is to allow employees to use up to $20 a month in pre-tax dollars deducted from their paychecks to cover expenses related to an employee's bike commuting such as bike parking facilities, shower facilities, and maintenance, including tubes, tires, and other gear.
Do Employers Have to Offer this Program? The federal Commuter Tax Benefit Program itself is not mandatory. However, the San Francisco Board of Supervisors passed the most far-reaching transit benefit requirement ordinance in the country. Ordinance 199-08 (PDF) authored by Sup. Ross Mirkarimi, requires employers with 20 or more employees to offer their employees transit benefits. As of January 19, 2009 employers who fail to do so will face fines of up to $800. Implementing the federal Commuter Tax Benefit Program is one way in which San Francisco employers can comply with this new city ordinance. The SF Department of Environment has more information on implementation of the San Francisco Ordinance.
How Does the Bicycle Commuter Tax Benefit Work?
Option 1: Employee-Paid Pre-tax Benefit Option
Many companies choose this option. By establishing a pre-tax deduction program, employers permit their employees to exchange part of their gross income for an employer-provided voucher. The amount of the pre-tax deduction is no longer treated or reported as taxable salary for the employee or employer.
The company does not have to write a plan document or obtain IRS approval, so there is little paperwork. There are no irrevocable elections or forms. A pre-tax program can be started any time of the year, or enrollment can be limited to certain times of the year. The League of American Bicyclists and the SFBC is working with Commuter Benefit Providers to add the bicycle benefit to their existing commuter portfolio.
Accor Services is the only Commuter Benefit Provider the SFBC is aware of that currently offers a Bicycling voucher for all purchases allowed by the federal program. This voucher can be used at any bicycle shop. Employers purchase the vouchers in advance, and are responsible for distributing them to their employees participating in the program.
Option 2: Cash Reimbursement
Employers can reimburse employees for cash outlays for covered expenses in areas where vouchers or passes are not "readily available" to be exchanged for covered services. The cash reimbursement can be up to the allowable monthly amount of $20, and the reimbursement is made from corporate funds or pre-tax employee salaries, or a combination of both. The employee must provide monthly bicycle related expense receipts to the employer to receive reimbursement.
The key point to consider in setting up a cash reimbursement program is that there is a required mechanism for the employee to certify that they will commute to work by bike a substantial portion of the month (that could 60% of the time as an example). Additionally, that there is a bona fide reimbursement arrangement whereby the employee provides receipts for covered expenses incurred such as, bike maintenance, commuting gear, parking facilities, changing or shower facilities etc.
