IRS FAQ Offers Relief From 80/50 Rule for Vanpools Affected by COVID-19

The IRS has posted an FAQ describing temporary relief from some of the conditions that ordinarily must be met for vanpooling benefits to be excluded from employees’ income. Generally, “vanpooling” means transportation between an employee’s residence and place of employment in a commuter highway vehicle. A “commuter highway vehicle” must have a seating capacity of six or more adults (not including the driver), and at least 80% of the vehicle’s reasonably expected annual mileage must be used to transport employees between their residences and their place of employment. Commuting miles count toward the 80%, however, only if the number of employees transported to or from work is at least 50% of the vehicle’s adult seating capacity (not including the driver). The mileage and capacity rules are sometimes referred to collectively as the “80/50 rule.” The 80/50 rule does not apply to private or public transit-operated (i.e., commercial) van pools.

The new FAQ posted on the IRS website announces that, for 2020, the 80/50 rule will be considered satisfied for a vehicle if, at the beginning of the 2020 calendar year, the employer reasonably expected the vehicle’s use would satisfy the 80/50 rule but the rule was not actually satisfied “due to the COVID-19 emergency.” For this purpose, the emergency is deemed to have begun on the date of the President’s emergency declaration, which was March 13, 2020. The relief applies to van pools using employer-operated or employee-operated vehicles. Provided the other requirements are met, up to $270 per month may be excluded from an employee’s income for the value of employer-provided van pool transportation and cash reimbursements for expenses in connection with an employee-operated van pool. Transit benefits under the same employer’s qualified transportation plan also count toward that limit. (See our Checkpoint Question of the Week for ways to minimize the impact of COVID-19 on qualified transportation plan participants.)

EBIA Comment: Many employers have responded to the COVID-19 emergency by encouraging or requiring some of their employees to work from home. In some cases, vanpooling may have stopped entirely, but in others it may have continued with reduced ridership that would not meet the usual conditions for excluding vanpooling benefits from employees’ income. This FAQ allows employers to continue treating vanpooling benefits as excludable despite reduced ridership, provided the vehicle’s reduced usage is attributable to the COVID-19 emergency. The FAQ does not indicate what steps, if any, an employer must take to affirm that a vehicle’s reduced use is attributable to the COVID-19 emergency. For more information, see EBIA’s Fringe Benefits manual at Section XX.F (“Vanpooling”).

Contributing Editors: EBIA Staff.