Section 132(f) Tax-Free Transportation Plan

A Section 132(f) Tax-Free Transportation Plan benefits the employer in two ways: It saves money on payroll taxes and it improves the employer-employee relationship by allowing the employees to also save money.

Save on Payroll Taxes

Since the employees do not have to pay FICA for expenses qualified under a Section 132(f) Tax-Free Transportation Plan, the employer does not have to pay the FICA match.

For a company with 50 employees deducting $180 a month each, the employer's savings on FICA would be $165 per employee per year. That works out to $8,262 savings per year for the employer!

If the employees elect $65 a month for transit pass and vanpooling expenses in addition to the $180 for parking expenses for a total election of $245 a month, the employer savings for each employee would increase to $225 per employee per year. This gives the employer with 50 employees electing $245 a month a tax savings of $11,244 annually!

Improve Employer-Employee Relationships

Today's employees want and expect fringe benefits. A good benefit program can:

• Attract new employees,
  
• Prevent employee turnover, and
  
• Maintain high employee morale

Employers today are looking for new ways to improve benefits with minimum or no cost. By providing a Section 132(f) Tax-Free Transportation Plan, the employer can provide a new benefit that will not cost the employer anything; in fact, it saves money for the employer!

How It Benefits the Employee

Employees do not have to pay federal payroll taxes on elections under a Section 132(f) Tax-Free Transportation Plan. In some states, the elections are also exempt from state and local taxes.

If an employee deducts $180 a month for parking expenses at 25% Federal and 7.65% FICA, the employee's take-home pay could be increased by $58.77 a month or $705.24 a year. Even if the employee only deducted $100 a month, the employee could save $391.30 a year.

If the employee chose to deduct $65 a month for transit pass and vanpooling expenses in addition to the $180 a month for parking expenses, the employee's take-home pa could be increased by $80 a month or $960 annually!

Overview

In 1997, the IRS Code § 132(f)(4) was amended to provide that constructive receipt rules would not apply to employees who are given a choice between taxable compensation and certain excludable parking benefits. Then this was expanded to include mass transit and vanpooling arrangements by the Transportation Equity for the 21st Century (May 22, 1998).

On January 27, 2000, the IRS published proposed Treasury Regulations describing how qualified transportation fringe benefits should work. On January 11, 2001, the IRS finalized the 2000 proposed regulations.

Both the proposed and final regulations are generally effective for taxable years beginning after December 31, 2001, except the readily-available 1% rule for transit passes applicable for taxable years beginning after December 31, 2003. Neither set of regulations states that taxpayers can rely on these regulations before that date.

The plan documents provided by eflexgroup.com, Inc. reflect the rules for taxable years beginning after December 31, 2001, and incorporates the above mentioned change as becoming operative after December 31, 2003.

One of the stipulations in the regulations was that a Section 132(f) Tax-Free Transportation Plan could not be administered under a cafeteria plan, but must be a separate programs.

No Constuctive Receipt

The regulations stipulate that no amount shall e included in the gross income of an employee solely because the employee may choose between any qualified transportation fringe and compensation which would otherwise be includible in such employee's gross income. This stipulation opens the door to creating a Tax-Free Transportation Plan.

Eligible Participants

Any individual considered to be in a legal employer-employee relationship with the Employer for Federal withholding tax purposes may participate in a Section 132(f) Tax-Free Transportation Plan.

Elections and Election Changes

Once an employee elects a benefit, the employee cannot change or terminate the election during the Coverage period. However, an employee can make an election at any time as long as the election is made before the receipt of the Eligible Transportation Expense benefits to which it relates.

Helpful Links

• IRC Section 132-How It Works
• Section 132 Proposal
• Section 132 Enrollment Form

---

If you would like more information about nonqualified retirement plans, please contact us at 888-669-4883, or email us at info@benico.com.