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.

Sign up for our newsletter

Related content

See all insights

Four Factors Affecting Open Enrollment Outcomes

Alegeus Partners with Wage Parity Experts

Q&A with Chris Cerone: Open Enrollment & Industry Revolution

Alegeus and Boon-Chapman Partner to Streamline Consumer-Driven Health Accounts

Open Enrollment Best Practices: Employer Communications & Considerations

COBRA - how it works, who is eligible, what it costs, and more

Top Three Open Enrollment Strategies for Benefit Admins

Q&A with Josh Collins: Lifestyle Benefits & Trends

Q&A with Brad Gambill: Medical Debt & Benefits

Take Control of Healthcare Costs

Q&A with Ethan Dellhime: Growth of Consumer-Directed Healthcare

FAQ: The Impact of Dobbs v. Jackson