IRS provides guidance on unused fringe benefits due to COVID-19

Good news: IRS has offered guidance on what employees can do regarding fringe benefits that weren’t used due to the coronavirus pandemic.

In short, the world shut down last year. Office commutes ceased, business travel plans were canceled, and in-person meetings were switched to virtual check-ins. As a result, many employees likely didn’t fully use their transportation fringe benefits. So, you may find some people asking if Finance can roll over the benefits or adjust their pay somehow.

How to reply

First and foremost, finance pros can tell employees that refunds in cash aren’t allowed. However, IRS recently confirmed that employees can take the unused amount they’ve set aside for one qualified transportation fringe benefit from their company’s plan and apply it toward another one.

IRS defines qualified transportation fringe benefits to include:

• transportation in a commuter highway vehicle between the employee’s residence and place of employment
• any transit pass, and
• qualified parking.

So, for example, an employee could take the unused amount for transit passes and apply it toward parking (as long as both of those fringe benefits are included in your company’s plan).

The finer points

This guidance comes from a recent information letter from the Office of Chief Counsel. The letter was replying to an inquiry about whether an employee who stopped taking public transit and started commuting by vehicle during COVID-19 could roll over the unused transit fringes toward parking.

The Service said this was acceptable under existing regs. That is, again, as long as the employer’s plan also offered parking as a qualified fringe benefit.

Also, any rollover funds applied can’t cause the total set aside for that particular benefit to exceed the per-month maximum. As a reminder, for 2020, the monthly limitations for transportation fringe benefits were $270 for qualified transportation fringes and $270 for qualified parking. And those limitations remain the same for 2021.