IRS Information Letter 2020-0024 (Sept. 8, 2020)
Available at https://www.irs.gov/pub/irs-wd/20-0024.pdf
The IRS has released an information letter responding to an inquiry from a qualified transportation plan participant with unused transit benefits. Explaining that he was now driving to work instead of taking public transportation due to the COVID-19 pandemic, the participant asked whether his unused benefits could be rolled over to a parking account.
The letter explains that unused compensation reduction amounts can be carried over to subsequent periods under an employer’s plan and used for future commuting expenses, so long as the employee has made a valid compensation reduction election and remains employed by the employer. In addition, the unused amounts can be applied to another qualified transportation fringe, such as qualified parking, to the extent that the other benefit is offered under the employer’s plan and the maximum monthly amount for that benefit is not exceeded. However, the letter cautions that the qualified transportation plan rules do not allow refunds of qualified transportation fringe benefits that are provided through a compensation reduction agreement.
EBIA Comment: The Code’s rules for qualified transportation plans offer considerable flexibility for minimizing benefit losses by participants who are no longer commuting, are commuting less frequently, or have changed their method of commuting. Unlike the rules governing health FSAs, the qualified transportation plan rules place few restrictions on compensation reduction election changes. But whether participants in any particular plan can take advantage of that flexibility will depend on the plan’s terms. To assure that their qualified transportation plans do not erect unnecessary obstacles to participants’ full utilization of their benefits, employers that have not already done so may wish to revisit their plan documents in light of the COVID-19 pandemic and make appropriate adjustments. For more information, see the Checkpoint Question of the Week in this edition of the EBIA Weekly. See also EBIA’s Fringe Benefits manual at Sections XX.O (“Compensation Reduction Elections”), XX.P (“Carryovers Allowed for Current Participants: Former Participants Cannot Have Unused Amounts Refunded”), and XX.Q (“Expense Substantiation and Other Requirements for Cash Reimbursements”).
Contributing Editors: EBIA Staff.