The IRS released Frequently Asked Questions (FAQ) to provide temporary relief to employers who operated van pools but experienced reduced ridership due to the Coronavirus (COVID-19) emergency. For this purpose, the emergency is considered to have begun on March 13, 2020.
Van Pools Must Satisfy Certain Requirements
For 2020, employers may exclude up to $270 per month in qualified transportation fringe benefits from their employee’s income. Included under this umbrella are employer reimbursements made to employees for the cost of commuting between their home and their place of employment, often called van pools. Van pools may be operated by employees, employers, or by private or public transit companies.
In order for a vehicle to be considered a van pool it must have a seating capacity of at least 6 adults (not including the driver), and at least 80 percent of its total mileage must be:
- for transporting employees between their residences and their place of employment; and
- used on trips during which the number of employees transported for commuting is at least 50 percent of the seating capacity (not including the driver).
These requirements are sometimes referred to as the “80/50 requirement”.
FAQ Provides Relief for Employers Unable to Meet the 80/50 Requirement
When the COVID-19 emergency was declared on March 13, 2020, many employers required their employees to work from home, which naturally resulted in less commuters. In some cases, the ridership in these vehicles may have dropped below the minimum 50% required to qualify as a van pool.
The IRS has provided that if, at the beginning of 2020, the employer reasonably expected that the vehicle would meet the 80/50 rule, then the value of the transportation and any reimbursements made to employees for the van pool may be excluded from the employee’s income as a qualified transportation fringe benefit, up to $270 a month. Essentially, how many people actually rode in the vehicle during 2020 is irrelevant, so long as the reduced ridership was due to COVID-19 and the vehicle met all other requirements.
Employees Ought to Know of Potential Tax
It is important for employers and employees to be aware of income exclusions they may be eligible for. This FAQ permits employers to continue treating van pool benefits as excludable in 2020, even if they did not fulfil the 80/50 requirement. The IRS has not released guidance on what, if any, steps an employer must take to prove that a van pool’s reduced ridership is due to the COVID-19 emergency. Presumably, it would be safest for employers to at least keep documentation to show that they had a reduced number of employees commuting to the workplace during the year.
By Nitasha Kadam, J.D.