One of the pandemic’s many long-lasting results is that some companies let employees work remotely. This decision brings up compelling considerations about fringe benefits. For instance, the IRS responded to a question regarding a participant in a qualified transportation plan whose employer now permits him to work permanently from home. See IRS Information Letter 2022-0002. The participant requested permission to move unused compensation reductions to prevent losing money he had already set aside for parking. Instead, he hoped to transfer it to his health Flexible Spending Account (FSA). The employer did also provide that benefit through its qualifying cafeteria plan.

Unused compensation reductions

The letter notes that unused compensation reduction amounts under an employer’s qualified transportation plan may carry over to subsequent plan periods and apply to future travel costs. But there’s a caveat. Employees cannot receive benefits in any month that exceed the maximum excludable amount.

However, cash refunds aren’t allowed. Additionally, the U.S. Code does not permit cafeteria programs to provide qualifying transportation fringe benefits. Further, according to IRS regulations, you cannot move unused compensation reduction funds from a qualifying transportation plan to a cafeteria plan-offered health FSA.

The letter also mentions that employers can modify their cafeteria plans to permit midyear health FSA election adjustments for plan years ending in 2021.

Please note that IRS Information Letters do not apply generic statements of well-defined law to a particular set of facts. Instead, the IRS provides them in response to inquiries from taxpayers or members of Congress seeking broad information.

Qualified transportation plans

The qualified transportation rules for fringe benefits have proven themselves flexible enough to handle most situations arising from the pandemic.

Many businesses let employees change their benefits selections at least once per month. Some programs let current members carry over unused amounts permanently. For example, suppose the plan authorizes it and the maximum monthly benefit has not run out. In that case, compensation reductions for one qualified transportation benefit, like parking, may be used for another qualified transportation benefit, like public transportation.

The IRS information letter’s curious participant discovered that the flexibility of the fringe benefit laws has its bounds. When providing employees with the option of a pay cut, employers should be sure to explain to them the possibility of some financial loss that could result from changing circumstances.

Offering fringe benefits

The correct fringe benefits might help your company recruit and keep talented workers. As you can see, there are many complexities to consider. Contact our RRBB accountants and advisors to assist you in evaluating the benefits and hazards of any fringe benefits you are presently providing or considering.

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