5/12/2015. Transportation Plans & Debit Card Issues. Copyright 2015 Employee Benefits Corporation

Transcription

1 Transportation Plans & Debit Card Issues 2 1

2 Teresa Cutler, ACFCI, CAS Compliance Director Employee Benefits Corporation The material provided in this webinar is by Employee Benefits Corporation and is for general information purposes only. The information does not constitute legal advice and may not be relied upon by anyone as such. Nor may the information be disseminated in any form. 3 Agenda: Transportation Plan Review Account Review Debit Card Guidance Review Guidance s Q & A 4 2

3 Transportation Plan Review 132 (f) Internal Revenue Code plan Allows employers to provide tax-free transit, vanpool, parking and bicycling expenses Not a health plan Not subject to ERISA, COBRA, HIPAA Cannot be part of a 125 Cafeteria Plan 5 Transportation Plan Review Formal plan document and summary plan description (SPD) are not required Must provide plan information Outline how benefits work Communicate procedures to employees Plan Documents and SPDs Often used to provide consistency Terminology employees are familiar with 6 3

4 Transportation Plan Review Any type of employer may sponsor a Transportation Plan Retirees and former employees may not participate Leased employees may be considered employees Self-employed individuals cannot participate Each benefit has its own monthly limit 7 Account Review 8 4

5 Account Review Transit Benefits Two types of transit benefits Transit Vanpool Combined monthly limit in 2015 is $130 per month 9 Account Review Transit Benefits Use of bus, rail, subway, monorail, streetcars, tramcars, ferry, etc. s include METRA (Chicago), MTA (New York), BART (San Francisco) Includes private and public providers Vanpool Benefits Transportation in a Commuter Highway Vehicle 10 5

6 Account Review Transit Passes Any pass, token, farecard, voucher or similar item that entitles the employee to transportation When Readily Available Test is met; transit passes must be distributed and no reimbursement is allowed (applies to Vanpool) Special rules for passes and vouchers to be reimbursed 11 Account Review Parking Benefit Parking provided to an employee at or near the business premise of the employer Parking provided to an employee at or near a location from which the employee commutes to work by mass transit Parking provided to an employee for which an employer pays (directly to a parking lot operator or by reimbursement to the employee) or parking that an employer provides on premises owned or leased by the employer 12 6

7 Account Review Monthly limit for parking in 2015 is $250 Separate from Transit monthly limit Parking benefit options Parking Paid directly to provider, voucher, prepaid card Parking cash reimbursement Receipts may be required Parking employer provided Payroll deduction to employer (pass through) 13 Account Review Bicycling This is an available account For this presentation, not covering aspects of operation 14 7

8 Debit Card Guidance Review 15 Debit Card Guidance Review Debit card use in the administration of transportation benefits grew in popularity Transit operators increasingly accepted debit cards for payments Transit operators introduced smart card systems Internal Revenue Service (IRS) stepped in to regulate use of debit cards and smart cards since these are governed by the tax code 16 8

9 Debit Card Guidance Review IRS Revenue Ruling Original effective date January 1, 2008 Delayed several times; became effective January 1, 2012 Governs the use of debit cards for the administration of commuter benefits and transit plans Concern for abuse of the Readily Available Test 17 Debit Card Guidance Review IRS Notice Delay effective date for use of debit card and smartcard guidance to January 1, 2009 IRS Notice Delay effective date for use of debit cards and smartcard guidance to January 1, 2011 IRS Notice Delay effective date for use of debit cards and smartcard guidance to January 1,

10 Debit Card Guidance Review IRS Notice Confirmed effective date of Revenue Ruling Requested additional comments about the use of electronic media due to technology issues Requested comments on Readily Available Test 19 Debit Card Guidance Review Revenue Ruling No more delays!!!! Effective January 1, 2016 After that date, employers may no longer provide qualified transportation fringe benefits under a bona fide cash reimbursement arrangement in cases in which a terminal-restricted debit card is the only voucher or similar item available for direct distribution by the employer to employees that may be exchanged for a transit pass

11 Debit Card Review Revenue Ruling Cash reimbursement killer Unless the employer can prove they cannot meet the Readily Available Test, cash reimbursement is no longer an option No known metro public systems fail the Availability Test Debit card guidance outline Time to review transportation programs now Guidance is Fact and based in 8 situations 21 Debit Card Guidance Review Readily Available Test Vouchers are readily available if an employer can obtain the voucher from a voucher provider that doesn t impose certain restrictions Financial restrictions (fare media charges 1% rule); and Nonfinancial restrictions (unreasonable advance purchase requirements, quantity requirements or inappropriate denominations) 22 11

12 s 23 s Situation 1 Situation 1 Facts Transit system provides smartcards that may be used by employers Smartcards have memory chips to store information Used to purchase fare media or used as fare media The smartcard cannot be used to purchase anything else other than fare media 24 12

13 s Situation 1 Situation 1 Outcome Pretax amount does not exceed monthly statutory amount, Employer makes payments to provider which is then allocated to each smartcard, The smartcard qualifies as a transit pass, No employees are required to substantiate the use of the smartcards; income is excludable from taxes 25 s Situation 2 Situation 2 Facts Employer provides a terminal-restricted debit card to purchase fare media Terminal-restricted means the box or card reader at which the card is swiped (not the merchant or location) Fare media is purchased at local transit systems 26 13

14 s Situation 2 Situation 2 Outcome Pretax amount does not exceed monthly statutory amount, Employer makes payments to debit card provider which is then allocated to each debit card, No employees are required to substantiate the use of the debit card; income is excludable for tax purposes 27 Situation 3 Situation 3 Facts Employer offers a debit card that employees may use to purchase transportation benefits that is merchant category code (MCC) restricted These merchants may or may not sell other types of merchandise (e.g., convenience store) Employee purchases a fare media card or voucher Employee must purchase fare media with after-tax dollars in the first month; employee then substantiates to employer the amount of fare media expense incurred during the following month 28 14

15 Situation 3 Situation 3 Outcome The amount is then allocated to the debit card For future months, the employer must receive periodic statements about the use of the MCC debit card The employee must sign a certification statement certifying the card will only be used for eligible expenses and then again annually If the amount of the fare increases, it must be paid with after tax dollars and substantiated using this same method This method does not qualify as a transit system voucher, but this is deemed to be a bona fide reimbursement arrangement Deductions would remain tax free 29 Situation 4 Situation 4 Facts Employer provides a debit card that has been restricted by MCC The merchant may or may not sell other items Employees certify they will only use the card for eligible expenses A voucher is not readily available to distribute to employees The employees provide no additional substantiation 30 15

16 Situation 4 Situation 4 Outcome Since no readily available voucher can be distributed, the employer may offer cash reimbursement The debit card does not qualify as a voucher Provides advanced reimbursement No substantiation of the expenses Subject to tax withholdings 31 Situation 5 Situation 5 Facts Employer provides a merchant category code (MCC) restricted card based on a Merchant s Identification Number This restriction blocks all purchases except fare media (similar to IIAS for medical purchase on a health debit card) The restrictions must be tested and effectively prohibit any other type of purchase 32 16

17 Situation 5 Situation 5 Outcome Technology prohibits employees from purchasing anything other than fare media Employees are not required to substantiate the use of the debit cards; deductions are tax free 33 Situation 6 Situation 6 Facts and Outcome Same facts as Situation 5 except that the employee uses Vanpool instead of Transit There is a delivery fee The delivery fee can be included as long as it does not exceed the monthly limit Vanpool uses Commuter Highway Vehicles Employees are not required to substantiate the use of the debit cards; deductions are tax free 34 17

18 Situation7 Situation 7 Facts There are two employers that provide debit cards The transit provider s MCC smartcard includes accounts that separately track funds for transit and parking and by whether contributed by the employee and/or employer Funds cannot be transferred between accounts Employees from Employer 1 use the employer provided debit card to load funds onto the transit provider s smartcard Funds from debit card are loaded on the smartcard as follows: Transit (ER funds), Parking (ER funds), Combined Account (ER and EE funds) 35 Situation 7 Situation 7 Facts and Outcome Continued The funds that employees use to load onto the smartcard are placed in the account that can be used for either transit or parking The debit card is MCC restricted and Merchant Identification Number restricted The use of the smartcard is problematic because funds are available for both transit and parking Employees deductions are included as taxable wages 36 18

19 Situation 7 Situation 7 Facts and Outcome Continued Employer 2 pays the transit provider directly (no debit card) This employer has both employer and employee funds All funds are transit related (no combined account) Employees do not need to substantiate the use of the smartcard and remain tax free 37 Situation 8 Situation 8 Facts Employer provides transit benefits through a cash reimbursement arrangement Debit card Provider T offers a terminalrestricted debit card which is readily available in the employer s geographic area Provider T s terminal-restricted debit card is the only readily available voucher in the area 38 19

20 Situation 8 Situation 8 Outcome Beginning after December 31, 2015 employers are no longer allowed to provide cash reimbursement when vouchers are available Terminal-restricted debit cards are vouchers These terminal-restricted debit cards are readily available in the geographic are by Provider T Deductions are taxable! Employers stop cash reimbursement 39 Sum It Up Lots of restated, refreshed and reinforced guidance on transportation The guidance is found in Revenue Ruling If a Readily Available Voucher is present in the area, cash reimbursement is no longer a feasible method for transit plans after December 31, 2015 to avoid taxation of the benefit No more delays! 40 20

21 City Ordinances Beginning January 1, 2016, New York City and Washington D.C. will require employers with over 20 employees to offer transit benefits to their employees Employers will have to carefully determine if transit passes are readily available If they are readily available, cash reimbursement is not an option

22 Transportation Plan Review Account Review Debit Card Guidance Review s 43 Questions? Any questions can be addressed by or phone at your convenience Compliance Department [email protected] Thanks for Attending!! Visit our online blog: