IRS Allows Advance Distribution of Transit Passes

Employers now can distribute tax-free mass-transit passes to their employees more than one month in advance. IRS Announcement 2000-78 changed the distribution requirement in proposed regulations that would have exempted transit passes from taxes only for the month in which they were actually distributed to employees.

Employers now may distribute transit passes (valued at $65 per month for 2001), as qualified transportation fringe benefits, for more than one month without negating the tax-free status of the passes. For example, an employer may distribute transit passes quarterly. However, if the employee holding advance passes terminates his or her employment before using all of them, and the employer does not recover their value, the employee will be liable for taxes on the remaining passes.