Impact on Commuter Benefits Programs

The tax reform bill (H.R. 1) approved by the House and Senate this week, and expected to be signed by the President, eliminates the deduction available to employers for the provision of qualified transportation fringe (“QTF”) benefits to their employees beginning on January 1, 2018, and treats certain amounts paid toward QTF benefits as Unrelated Business Taxable Income for tax-exempt employers.  The bill appears to apply the new rules both to employer-funded amounts as well as to amounts paid through employee pre-tax salary deductions.

One direct consequence of the changes made by the new law is that the provision of QTF benefits to employees can effectively cost more for employers who were previously taking a deduction on their tax returns for such QTF benefits or who may now be obligated to pay unrelated business income tax for providing such QTF benefits.  These adverse tax consequences should be factored in as an additional cost to the employer in any compensation and benefits planning for 2018 and future years.

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