Employer-provided transportation benefits.

IRS Notice 94-3 provides guidance for thc 1993 filing season on the treatment of employer-provided transportation benefits, primarily to take into account an amcndment to Sec. 132(f) by the Energy Policy Act of 1992.

The three significant changes to tax-free transportation benefits are:

* A limitation on employer-provided parking, excludible from gross income to a maximum of $155 per month.

* An increase in the exclusion for transit passes from $21 to $60 per month.

* The addition of an exclusion for van pools, for up to $60 per month.

Any amounts over the new monthly thresholds are taxable. For income and employment tax purposes, employers are responsible for determining the taxable amount to be included in the employees, wages. Sec. 132(f) applies to benefits provided after Dec. 31, 1992.

Free or discounted parking may continue to be provided on a dis criminatory basis. However, if the value of parking provided by the employer exceeds $155 a month the excess value must be includec in the employee's wages. This would occur when the employe pays a third-party provider owns or leases property where parking is provided to employees without the employer incurring an additional cost.

Valuation is the key issue in determining whether thc new $155 monthly threshold has been met; the employer's cost in providing the benefit is irrelcvant (e.g., if the employer's lease includes "free parking," that "cost" may not be used for valuation purposes). Until Mar. 31, 1994, employers providing parking, van pooling and mass transit passes are permitted to use any reasonable method for determining the value of these benefits. After Mar. 31, 1994, these benefits must be valued based on the amount that would be paid in an arm's-length transaction.

Caution: Employers that have given employees the choice of receiving compensation in lieu of a parking space or transit pass must include the cash amount of the option in income, whether the employee selected cash or a parking space.

Qualified transportation fringe benefits may only be provided by employers to common-law or statutory employees. Self-employed individuals, such as partncrs, 2% S shareholder-employees, sole proprietors and independent contractors, are not considered employees for Sec. 132(f) purposes, and thus do not qualify for any exclusion of qualified transportation fringe benefits.

While they may not use Sec. 132(f) to include parking benefits, independent contractors, partners and S shareholder-employees may exclude the value of parking from income as a de minimis fringe benefit if the accounting procedures required to value the benefit are impracticable. In any situation in which there is more than a modest value for parking privileges, such as a lot at a metropolitan hospital reserved for physicians, the IRS will likely argue that it is practical to determine the value of the parking privileges and account for the parking.

From Bill Dunn, CPA, Washington, D.C.