InfoBrief: Employer Tax Offset Opportunities Under the

  Transportation Equity Act of the 21st Century (TEA-21)











  • TEA-21 signed into law on June 9, 1998

  • Successor to ISTEA (Intermodal Surface Transportation Efficiency Act of 1991)

  • Almost $217 Billion authorized over 6 years, to 2004

  • In part updated Section 132(f) of the Internal Revenue Code concerning "Qualified Transportation Fringe Benefits"

  • Saves employers and employee taxes (see below)

  • Others, but not relevant to Transportation Demand Management (TDM) and employer cost-savings opportunities.

In general, the term "Qualified Transportation Fringe" means any of the following benefits provided by an employer to an employee for:

  • Transportation in a commuter highway vehicle in connection with travel between the employee's residence and place of employment. A "Commuter Highway Vehicle" is defined as any highway vehicle that has a seating capacity of at least 6 adults not including the driver, and at least 80% of its mileage use is for transporting employees between their homes and place of employment, and on trips where at least half of the seats (not including the driver) are occupied by adults.

  • Any transit pass. A transit pass is defined as any pass, token, farecard, voucher or similar item that can be used for transportation or mass transit facilities in provided by any business that transports people as long as the vehicle's use meets the above definition of Commuter Highway vehicle.

TEA-21 Major Focal Points

Four Changes in Law:

  1. § 132(f)(4) removed "constructive receipt/in lieu of" for tax years beginning after 12/31/97.

  2. § 132(f)(6) added an inflation adjustment for taxible years beginning in a calendar year after 1999.

  3. § 132(f)(2) increased monthly exclusion limits to $65 (from $60) commuter vehicles and transit passes, and to $175 (from $155) qualified parking for tax years after 12/31/98.

  4. § 132(f)(2)(A) $100 (from $65) new maximum monthly exclusion for employer provided transit passes, plus inflation adjustment of a new base period effective after 12/31/01.

US Treasury Responses:

  1. Minimal Plan Requirements

    • Need not be in writing

    • No employer reporting burdens

    • 3rd party administration okay

  2. Still use IRS Notice 94-3 but consistent with TRA 1997 and TEA-21

  3. Can reduce employer salary or other compensation in exchange for QTF without taxation

  4. QTF not through cafetera plan

  5. Nondiscrimination rules do not apply

  6. Timing/Duration - no requirement but must be before currently available

  7. Cash reimbursement okay except if for transit passes when readily available for direct distribution to employee, can use Flexible Spending Accounts (FSA's)

  8. No W-2 reporting required

TEA-21 §132 Examples

  1. Employer A offers to give a voucher for transit or vanpooling expenses worth $65/month to any employee who wants one. The voucher is offered and not in lieu of compensation otherwise payable to the employee. An employee who receives the voucher will not be subject to tax on the value of the voucher.

  2. Employer B offers to make qualified parking worth $175/month available to any employee who agrees to a $175/month reduction in his or her salary. An employee who elects to receive the parking privilege will not be subject to tax on the amount by which his or her salary is reduced or on the value of the privilege.

  3. Employer C offers to give a transit pass worth $65/month to any employee who agrees to a $35/month reduction is his or her salary. An employee who elects to receive the transit pass will not be subject to tax on the amount by which his or her salary is reduced or on the value of the pass.

  4. Employer D offers to give a transit pass worth $65/month, reimbursements for up to $65/month in vanpooling expenses, reimbursements for up to $175/month in qualified parking expenses, or $65/month in cash to each of its employees. Employees will be subject to tax on the benefits provided under the program only to the extent that he or she receives the cash.

Known Participating Employers


Met Life

AT&T Capital




Vell Atlantic (Verizon)

SmithKline Beecham


Philadelphia Suburban Water



Lockheed Martin

Wilmington Savings Fund Society


Cost Savings Potential

  • To Employee: If vouchers/expenditures fully expensed at $65/month:

$65 x 7.65% FICA = $4.97

12 mos = $780 x 7.65% FICA = $59.67/year

  • To Employer: If assume 1,000 employees at $65/month:

$65 x 1,000 x 7.65% FICA = $4,972.50/month

12 mos = $59,670/year

If 10,000 employees = $596,700/year

If 16,759 employees = $1 Million/year! ($1,000,009.50!)


NOTE: Employers should contact their own tax advisors for full interpretation of the language to determine applicability to individual situations.