May 5, 2022 4:38 am

Unused Transportation Fringe Benefits Are Lost

Employers may offer employees certain tax-free transportation fringe benefits up to set dollar limits. These can be arranged through employer payments or employee payments on a pre-tax basis (salary reduction agreements). Once an employee commits to a salary reduction agreement for the year, it can’t be changed. This is so even if commuting patterns change. For example, an employee may opt to work from home and no longer needs commuter benefits. The IRS ruled informally that unused commuter benefits can’t be contributed to a health flexible spending account (FSA) offered through a cafeteria plan (IRS INFO 2022-002). Transportation fringe benefits may not be offered through a cafeteria plan, so they can’t be contributed to one.

Last year, certain elections under cafeteria plans were allowed to be changed due to COVID-19 (Notice 2021-15). However, the changes were limited to benefits provided under a cafeteria plan and did not relate to transportation fringe benefits.

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Tax Glossary

Partnership

An unincorporated business or income-producing entity organized by two or more persons. A partnership is not subject to tax but passes through to the partners all income, deductions, and credits, according to the terms of the partnership agreement.

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