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Income Tax Code No Longer Favors Parking Over Transit

1 min readBy: Joseph Bishop-Henchman

Among the provisions inserted into last month’s stimulus bill is one amending Section 132(f) of the Internal Revenue Code with respect to “qualified transportation fringe”:

In the case of any month beginning on or after the date of the enactment of this sentence and before January 1, 2011, subparagraph (A) shall be applied as if the dollar amount therein were the same as the dollar amount in effect for such month under subparagraph (B).

The section in question permits an exclusion from gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” of money paid by the employer for an employee’s transportation costs, or withheld by the employee from his or her paycheck for that purpose. There is, however, a cap. Before this change, parking was capped at $230 in 2009 and transit at $120.

The stimulus provision equalizes these two at the parking level, $230 per month. The provision has already taken effect and expires at the end of 2010.

So, in short, whereas before employers could provide only $120 per month in transit benefits (or a smaller amount, and employees deducting the rest), it can now be up to $230 per month.

(There is an ongoing dispute over transit patrons who use part of their benefits for parking at transit lots. It is the IRS’s position that this is not permissible and that employees must choose either parking or transit. However, due to logistical issues, the IRS has suspended enforcement of that order until at least January 1, 2010.)