The fiscal cliff tax discussion is complex but there is one relatively simple matter that can be addressed in the next few months: improving the little known commuter bike tax benefit. Buried deep in the Emergency Economic Stabilization Act passed by Congress in 2008, is a benefit for those who commute to work by bike. Bike commuters are eligible to receive up to $20/month (or $240/year) from their employers for “reasonable expenses made by the employee…for the purchase of a bicycle and bicycle improvement, repair, and storage.” Known as the Qualified Bicycle Commuting Reimbursement (QBCR), the bike tax benefit is covered in section 132(f) of the IRS code. While bike commuters receive a tax benefit, employers can see savings too by reducing their FICA (e.g. Social Security and Medicare) taxes.
However, the bike tax benefit comes with two key limitations. Unlike other commuter tax benefits for parking and transit, the bicycle provision cannot be funded through employee pre-tax income, nor can it be used in conjunction with other commuter tax benefits in the same month. So, if you use your bike to commute to the train station, and you already receive a transit commuter tax benefit, you cannot take advantage of the bike tax benefit.
Congressman Earl Blumenauer of Oregon proposed the Commuter Relief Act in May 2011 to remedy these limitations. Although the bill didn’t pass last session, there is an opportunity now in the tax discussion to revisit, and improve, the bike tax benefit. Blumenauer’s bill would increase bike benefits from $20/month to $40/month, and allow bike commuters to combine the bike benefit with other commuter benefits, up to $200/month. This legislation also seeks to cap all commuter benefits at $200/month and allows self-employed individuals to be eligible to receive transit tax breaks. Lastly, the Commuter Relief Act would reduce the parking benefit from $240/month to $200/month and bump up the transit benefit from $125/month to $200/month.
The Commuter Relief Act offers attractive incentives for those biking to work as well as those considering it. As Congress takes up reforming taxes in the coming months, they should also revisit this bill.