In a revenue ruling issued Nov. 21 (Rev. Rul. 2014-32), the IRS provided guidance on employers' use of smartcards, debit and credit cards, and other electronic media to provide qualified transportation benefits to employees.
Section 132(a)(5) provides that an employee's gross income does not include a qualified transportation fringe, which includes transportation in a commuter highway vehicle between home and work, any transit pass and qualified parking. The revenue ruling addresses eight factual situations involving the use of electronic media to provide transportation benefits.
For example, in one situation, the IRS held that an employer-provided transit fare is a qualified transportation benefit when the employer provides the employee with a debit card that has electronic restrictions under which the card can be used only for transit fares and no other items.
On the other hand, the IRS ruled that if the employer-provided debit card can be used to purchase transit fares and other items, the debit card does not satisfy the qualified transportation fringe benefit rules. In those situations, the employer must implement a bona fide reimbursement arrangement to satisfy the qualified transportation fringe benefit requirements.
The revenue ruling also states that beginning after Dec. 31, 2015, the value of transit benefits provided by an employer to its employees through a cash reimbursement arrangement will no longer be a qualified transportation benefit when a terminal-restricted debit card is the only readily available transit pass in the employer's geographic area.
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