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Section 132(f) Commuter Benefits Plans vs. Section 125 Flexible Spending Plans
Commuter benefit programs operate under a separate section of the Internal Revenue Code (IRC) – Section 132(f) – than most other pre-tax benefit programs with which employers are familiar. Medical savings accounts and other employee benefit flexible spending plans are covered by Section 125 of the IRC.
Section 132(f) plans are far more flexible than Section 125 plans. For employers who are accustomed to managing Section 125 plans, the different regulations for Section 132(f) plans may be a source of confusion because the two plans operate under distinctly different sets of rules, and employers cannot combine them. The differences in how the plans operate are outlined in the table below.
Compare Section 132(f) commuter plans and Section 125
| Characteristic | Section 132(f) Commuter Plans | Section 125 Flexible Spending Plans |
|---|---|---|
Enrollment period |
Determined by employer, usually monthly |
Must be annual |
Reimbursement period |
Employee reserved wages must be used each month by company to purchase pass or e-purse |
Employee can be reimbursed the full amount of one year’s reserved income at any time during the year |
Distribution of pre-tax income remaining at end of enrollment period. |
No “use-it-or-lose-it” provision since funds do not accumulate |
Employee forfeits money (commonly known as “use-it-or-lose-it”) |
Employee eligibility |
May be made available to any employee or groups of employees |
Must meet nondiscrimination test |
IRS reporting requirements |
No reporting requirements |
Annual reporting required |
IRS plan documentation |
No written plan documentation required |
Written plan documentation required |
Tax links
- Federal Register
IRS regulations on Qualified Transportation Fringe Benefits - Internal Revenue Service