The Energy Improvement and Extension Act of 2008 amends Section 132(f) of the Internal Revenue Code to include a new fringe benefit that allows employers to reimburse employees who commute to work by bicycle for certain bicycle expenses. An employer may reimburse an employee on a tax-free basis for reasonable expenses incurred during the calendar year for the purchase of a bicycle and bicycle improvements, repair and storage, provided the bicycle is regularly used for travel between the employee’s residence and place of employment.
The employer is permitted to reimburse the employee in the amount of $20 for each bicycle commuting month. A bicycle commuting month is any month in a year that the employee regularly uses the bicycle for a substantial portion of the travel between the employee’s residence and his or her place of employment. An employee may not receive the bicycle commuter reimbursement in any month in which the employee received any other benefit for transit passes, parking and/or transportation in a commuter highway vehicle. Unlike the other qualified transportation benefits, the $20 per month limit on the qualifying commuter reimbursement will not be adjusted for inflation. The reimbursement may be paid anytime during the calendar year in which the expense is incurred, or during the three-month period following the end of such calendar year. This fringe benefit cannot be funded through payroll deductions.
The new law is effective January 1, 2009.
Employers that wish to extend this new fringe benefit to employees are not required to adopt a written plan document, but should consider having a written plan that sets forth the terms of the plan, eligibility, and rules and procedures to be followed by employees seeking to take advantage of this benefit. As there are no substantiation rules specific to the bicycle commuting reimbursement, employers should implement a bona fide reimbursement arrangement to establish that the employee has in fact incurred expenses for transportation. Such arrangement may vary depending on the facts and circumstances, but typically would include: (i) reasonable procedures to ensure that the expense was incurred; (ii) substantiation of the expense within a reasonable period of time, typically 180 days; and (iii) an employee certification that he or she incurred such expense.