Transit Benefit Reimbursements: the latest from the IRS

The IRS published a response to an inquiry from an employee concerned that their employer’s third-party administrator (TPA) had informed all employees that it would no longer accept claims for cash reimbursement of transit funds after December 31, 2015 – meaning that employees would have to use a contribution-funded debit card to cover their mass transit expenses.

After under-going changes to restrict cash reimbursements, current IRS regulation states that qualified transit plans are permitted to offer cash reimbursement for transit passes only if no pass, token, farecard, voucher or similar item (that can be exchanged only for a transit pass) is “readily available” for employees.

The IRS’ response to the employee’s letter stated that the situations described “do not appear” to indicate that an acceptable form of payment is not “readily available” and that “employees have failed to use the debit card, which they assume qualifies as a voucher that may be exchanged only for a transit pass.” In addition, the IRS stated that employers are free to establish their own restrictions on their transit plan, including the requirement for a debit card or voucher.

The IRS response indicates that, to be safe and ensure IRS compliance, employers and TPAs should restrict the use of cash reimbursement for transit expenses. Using a debit-card or similar “voucher” item will eliminate the risk of non-compliance.

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