On March 25, 2022, the IRS released an information letter on qualified transportation plan rules, and Qualified Transportation Fringe (QTF) benefits, which are frequently going unused with recent increases in remote work. In general, employers may provide transportation benefits excludable from taxable income (up to indexed $280 per month in 2022) if the benefit satisfies the requirements of Code §132.
This information letter specifically addressed whether unused QTF benefits may be transferred to a health FSA under a cafeteria plan. Starting with the rule that under no circumstance can an employer provide a cash refund of unused QTF benefits, the IRS explained unused QTF benefits could also not be transferred to a health FSA.
QTF benefits remain flexible in the ability to carry over unused balances year-to-year for future commuting expenses. However, one notable limitation in the Code’s rules is for terminated employees who must forfeit unused QTF benefits. This is consistent with the prohibition on cash refunds.
This information letter serves as a reminder that, like with all employee benefits, communication is key. Employers should clearly convey the risk of accruing unusable benefits. They may also want to prompt employees to check QTF balances throughout the year, submit reimbursement requests on a timely basis, and adjust elections accordingly. These communications can prevent accruing large balances later rendered unusable due to a change in employment circumstances, such as when shifting to remote work or changing jobs.
IRS Information Letter 22-0002 »
PPI Benefit Solutions does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.
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