IRS issues guidance on transit benefits

WASHINGTON—The Internal Revenue Service has issued guidance for employers that provide transportation benefits to their employees using so-called smart cards, debit cards, credit cards or other forms of electronic media.

Smart cards that can be used solely for paying transit fares, as well as debit cards that can be used only at dedicated transit terminals, can qualify as transit vouchers under federal tax law, according to Revenue Ruling 2006-57, issued Monday. However, debit cards that aren't restricted to transit terminals will be permitted if transit vouchers aren't readily available and the employer has reasonable procedures for substantiating employees' transportation expenses.

The amount of employer-provided transit benefits that may be excluded from gross income and wages for 2006 is limited to $105 per month for transit fares and $205 per month for qualified parking expenses.

Although the revenue ruling does not officially take effect until Jan. 1, 2008, employers and employees may begin applying it now, the IRS said.