Monday, March 4, 2013

Tax Break for Biking to Work

The federal government provides various tax breaks for commuting by bus, subway, and other forms of mass transportation.  But the Brooklyn delegation to Congress has not been idle, and Internal Revenue Code section 132(f) provides a lucrative tax break for the expenses of biking to work.

A bicycle commuter can receive tax-free reimbursements from his or her employer for the costs of bike purchase, maintenance, and storage, up to the incredible sum of $20 per month ($240 a year). 

The $20 per month limit is not indexed for inflation.

The bicycle commuting tax benefit was enacted as part of the $700 billion stimulus bill of late 2008. 
At the highest federal marginal tax rate of 39.6%, for incomes over $400,000, the tax savings per biker should equal around $95 a year.

In order for the bicycle commuting tax benefit to not explode in popularity and cost, for the 0.53% of Americans who commute by bike, the $20 per month reimbursement is only allowed only for months during which the bicyclist "regularly" uses the bike for a "substantial portion" of the commute to work, and during which he or she does not receive any TransitCheks or other tax-free transportation benefit.



Section 132 Certain fringe benefits.

(a) Exclusion from gross income.
Gross income shall not include any fringe benefit which qualifies as a—  ***
(5) qualified transportation fringe,
***
(f) Qualified transportation fringe.
(1) In general.  For purposes of this section, the term “qualified transportation fringe” means any of the following provided by an employer to an employee:
(A) Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee's residence and place of employment.
(B) Any transit pass.
(C) Qualified parking.
(D) Any qualified bicycle commuting reimbursement.  
***
(5)(F) Definitions related to bicycle commuting reimbursement.
(i) Qualified bicycle commuting reimbursement. The term “qualified bicycle commuting reimbursement” means, with respect to any calendar year, any employer reimbursement during the 15-month period beginning with the first day of such calendar year for reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee's residence and place of employment. 

(ii) Applicable annual limitation. The term “applicable annual limitation” means, with respect to any employee for any calendar year, the product of $20 multiplied by the number of qualified bicycle commuting months during such year. 

(iii) Qualified bicycle commuting month. The term “qualified bicycle commuting month” means, with respect to any employee, any month during which such employee—
(l) regularly uses the bicycle for a substantial portion of the travel between the employee's residence and place of employment, and
(ll) does not receive any benefit described in subparagraph (A), (B), or (C) of paragraph (1).

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