FAQ: Transportation Reimbursement Accounts
The most frequently asked questions about Transportation Reimbursement Accounts.
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Q. How does a Transportation FSA Plan operate?
A. At the beginning of each quarter, employees make their "benefit elections," stating whether they will participate in the account and how much pre-tax salary they agree to contribute. Benefit elections may be changed on a quarterly basis during the plan year. To receive funds from their accounts, employees are required to submit written proof that they have incurred an expense that is qualified for reimbursement under the plan.
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Q. What are the contribution limits for 2014?
$130 per month for Van Pooling and Transit Passes
$250 per month for Parking
The proposed regulations state that the employer may provide the parking or van pooling benefit by reimbursing the employee in cash for expenses the employee has paid. That is, the employer does not have to provide the actual parking facility or van pooling or arrange for direct payment for such services.
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Q. How do Transportation Plans differ from other FSA Plans?
A. Employer Reimbursement for Transit Passes May Not Be Valid
Cash reimbursement for mass transit passes is allowed “only if no voucher or similar item that may be exchanged only for a transit pass is readily available for direct distribution by the employer to employees.” In cities where transit passes are made available through transit agencies, it may not be possible for employers to reimburse employees for transit fares the employee has already paid.
Salary Reduction Agreements Differ
Similar to Healthcare and Dependent Care FSA Plans, salary reduction elections for Transportation FSA Plans must be irrevocable only for the period in which the parking, van pooling, or transit benefits are available. They specifically state that salary reduction amounts cannot be refundable. That is, the employer cannot cash out unused salary reduction amounts if the employee’s salary reduction exceeds the actual parking, van pooling, or transit benefit provided to the employee.
Unused Money May Be Carried Forward and Not Forfeited
Unlike Healthcare and Dependent Care FSA Plans, Transportation FSA Plans provide that unused amounts may be carried over to subsequent periods. There is no annual “use it or lose it” rule. While unused amounts cannot be cashed out, they do not need to be forfeited, and instead can be carried over to provide parking, van pooling, or transit benefits to the employee in subsequent years. Of course, because the salary reduction amounts are not refundable, forfeitures are likely to occur upon termination of employment.
Expenses Incurred Before Participation Date Are Ineligible for Reimbursement
The salary reduction election must be prospective and for a fixed dollar amount or fixed percentage of compensation. The employer cannot provide for reimbursement through a salary reduction arrangement of parking, van pooling, or transit expenses that have already been incurred by the employee before the election. Nor could the employer provide for variable salary reduction amounts determined after the employee submits a reimbursement request (a “zero balance reimbursement account” approach).
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Q. How does a Transportation Reimbursement Plan impact my other plans?
A. Employers offering pre-tax Transportation Plan should review the terms of their other pay-based employee benefit plans to determine the potential impact of salary reduction elections made in exchange for transportation benefits. For example, the current rules under Internal Revenue Code Sections 414(s) and 415 do not provide for adding back Section 132(f) salary reduction amounts, even though they do provide for adding back Section 401(k) and Section 125 salary reduction amounts. Salary reductions made in exchange for transportation benefits may also affect the benefit level under an employer’s life insurance or disability income plans.
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