Taking Advantage of the Bike Commuter Benefit
The bicycle commuting reimbursement was added to the tax code five years ago, in 2009, yet its application has been limited. The tax benefit allows for bike commuters to collect a $20 pre-tax payment from their employers, which can be used toward qualified expenses. According to the IRS, “reasonable expenses” include the purchase of a bike, repairs, improvements and storage; clothing is excluded, and “These are considered reasonable expenses as long as the bicycle is regularly used for travel between the employee’s residence and place of employment.”
A company must choose to offer this benefit to their employees just like any other transportation benefit. Employers benefit by getting a tax deduction for the reimbursement and save in employee pay by providing the same value with less money than through normal wages. As pre-tax dollars, the money can go further in paying for commuting costs than $20 out of a paycheck.
“Let’s say your employer gave you $60 extra a month on your salary–a big chunk of that for most people would go to pay taxes, but because it’s an added benefit it’s not included as part of your salary,” says Torre St. Saviour, marketing manager at Commuter Check, a commuter benefit service for businesses. “This way they’re actually able to get the money directly to you without having to change your tax bracket or how much you pay in taxes.”
Small businesses and companies with few cyclists on their payroll may be reluctant to do the work required–processing receipts and deductions to employee paychecks–but there a number of ways to simplify its implementation. The benefit may be administered by a benefit administrator (such as Commuter Check), a third party payroll agency, or in-house. Commuter Check issues vouchers to employees, which are redeemable at partner bike shops.
“We partner with hundreds of bike shops throughout the U.S. to accept these vouchers as payment for bike maintenance or bike parts,” says St. Saviour. By offering vouchers, employers can provide their employees with the benefit without having to collect receipts under IRS requirements. The voucher includes security features similar to a check and can only be redeemed for specific expenses, eliminating the need to submit receipts as proof.
“If you go to a shop and they don’t accept the voucher you can give us a call and we will work with the bike shop to make them a partner. Usually if a shop is not a partner yet is because there hasn’t been a need in that area.”
The benefit can be distributed to employees at any time. Although the benefit allows for up to $20 per month, it can also be taken on an annual basis, allowing for a simpler process involving less paperwork and time. Meredith Corporation offers cash reimbursement on an annual basis to employees who submit a claim in the form of receipts for qualified purchases made in months during which they commuted by bike at least 10 times.
“At Chatham interested faculty and staff fill out a form and turn in receipts,” says Michael Boyd. Boyd, who is an assistant professor of music at Chatham University, has taken advantage of the tax credit since 2010. “The original idea was to do reimbursements quarterly, though I seem to get a check within a week or two of turning in receipts. The check is comparable to any other reimbursement type of payment.”
For businesses that wish to provide the benefit monthly, the League of American Bicyclists provides a set of 12 tax reimbursement cards, to which receipts for qualified expenses can be attached and submitted.
A few limitations to the benefit have hindered its use, but when applied it provides pre-tax dollars that can go directly towards bike parts and maintenance. A significant drawback to the bike commuter benefit is the fact that it cannot be offered in addition to any of the other transportation benefits. In 2014 the transit and vanpool credits max out at $130 per month (reduced from $245 in 2013), while the parking credit tops out at $250 a month. Unlike the parking, carpooling and transit benefits, the bicycle commuter benefit cannot be excluded from wages.
“When they pay as a subsidy or the employees take deductions out of their paycheck, the employer is actually reporting to the government a lower salary to you, so they actually pay a smaller amount in payroll taxes,” says St. Saviour.
Independent contractors are not eligible for the credit, and it applies to the use of non-motorized bikes only. More information on the bicycle commuter and other transportation benefits is available from the IRS.
About Krista Carlson
A regular contributor to the print edition of Urban Velo, Krista Carlson is a cyclist obsessed with bike polo, baking, pickles, and all things bike-y. She is a native Angeleno and is madly in love with the city and everything that makes it the beautiful, crazy place that it is.