Many employers operate in locations where employees can bike to work. If you have employees who do so, you might wonder whether you can still reimburse bicycle commuting expenses as a fringe benefit, given the tax law changes in recent years. The short answer is yes, but the tax consequences have changed.
Before 2018, qualified bicycle commuting expense reimbursements could be excluded from employees’ income and deducted by the employer. The exclusion applied to reasonable expenses incurred for the purchase, improvement, repair or storage of a bicycle regularly used for travel between home and work.
The maximum exclusion from federal income and employment taxes was $240 per year in qualifying reimbursements, though the actual exclusion for an employee depended on the number of months during the year that were “qualified bicycle commuting months.” A month was “qualified” only if the employee’s bicycle was used for a substantial portion of the travel between home and work and the employee didn’t receive any other qualified transportation fringe benefit during that month.
For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) suspended the exclusion for qualified bicycle commuting reimbursements by removing them from the Internal Revenue Code’s (IRC’s) definition of a “qualified transportation fringe” during the suspension period. Any bicycle benefits paid to employees during that period must be treated as taxable compensation, unless Congress restores the exclusion.
The tax deduction consequences for employers are a little more complicated. The TCJA also generally amended the IRC to eliminate deductions for “any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee’s residence and place of employment, except as necessary for ensuring the safety of the employee.”
During the suspension period, however, the employer deduction is preserved for bicycle benefits that would have been excludable absent the suspension. Thus, if an employer provides bicycle benefits during the suspension period, it can deduct its expense up to the amount it pays or incurs to provide qualified bicycle commuting reimbursements. But any bicycle benefits that don’t meet the IRC’s definition of a qualified bicycle commuting reimbursement won’t be deductible during the suspension.
So, if maximizing the deduction is essential, you might want to limit bicycle benefits to those that would have been excludable before the suspension. But if other goals are more important to your organization than the tax deduction, consider providing bicycle benefits that differ from or exceed those that would have been excludable. For example, reimbursements for bicycle-sharing program rental fees aren’t considered qualified bicycle commuting reimbursements and aren’t deductible, but they may be an attractive employee benefit and help encourage more employees to bike to work.
No deduction ahead
Unless there are further tax law changes, beginning in 2026 (after the exclusion suspension has ended), generally no deduction will be available for bicycle commuting benefits, so you’ll have no tax reason to limit bicycle benefits to reimbursements that were excludable prior to 2018. Contact us for further information.
All of this could be quiet difficult to understand, that is normal. But do not panic, Fiducial is here for you. In fact, our company will guide you through all these elements and will advise you on what decisions you have to take.
If you have any doubts or questions about bicycle commuting reimbursement, do not hesitate to contact us. Please call the office or schedule an appointment on our website www.fiducial.com. We will be delighted to work with you. Please reach out to your local Fiducial office today. You may find our nearest one at https://www.fiducial.com/locations.