TEA-21 - Transportation Equity Act for the 21st Century
Moving Americans into the 21st Century
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TEA-21 modifies provisions in the Internal Revenue Code to help level the playing field between employee parking benefits and transit/vanpool benefits.
Before Modification by TEA-21 [26 USC 132(f)]
Employers could provide employees transit and vanpool qualified transportation fringe benefits that were excludable from gross income (i.e., not taxable to the recipient) only if provided in addition to, and not in lieu of, any compensation otherwise payable to an employee.
Parking benefits were excludable from gross income even when provided in lieu of other compensation payable to an employee (i.e., purchased with pretax dollars) under the Taxpayer Relief Act of 1997. This option remains unchanged by TEA-21.
New Provisions 
Transit and vanpool benefits may be offered in lieu of compensation payable to an employee for taxable years beginning after December 31, 1997. This gives transit and vanpool benefits the same tax treatment that parking benefits receive under the Taxpayer Relief Act of 1997.
The limit on nontaxable transit and vanpool benefits is increased from $65 to $100 per month for taxable years beginning after December 31, 2001.
All benefits are indexed for inflation; however, the indexing mechanism is suspended during the taxable year beginning after December 31, 1998. Therefore, the maximum transit/vanpool benefits will remain at $65 per month and parking will remain at $175 per month for calendar year 1999. The indexing mechanism will resume for the taxable year beginning after December 31, 1999.
Employer Options 
Employers (for taxable years beginning after December 31, 1997) will be able to offer employees several options for qualified transportation fringe benefits. These benefits are not, however, permitted to be part of "cafeteria" plans or flexible spending accounts.
Employers can offer any combination of these benefits (up to the specified limits), either in addition to present compensation or in lieu of compensation, tax free.
Employers can also offer a parking cash out program whereby employees may choose to cash out the value of employer-provided parking, forego parking, and receive the taxable cash value of the parking, or receive a tax-free transit or vanpool benefit of up to $65 per month.
September 14, 1998