Value of transit pass excludable from employee’s income

A city’s employees could exclude the value of a Smart Card, in essence a transit pass, from their gross income. The city provided Smart Cards to its employees, both full- and part-time, for use with the local transit authority. This allowed the employee to ride on all parts of the transit authority’s buses and rapid transit systems. Because the card was a transit pass under Code Sec. 132(f)(5)(A), the employee was able to exclude the monthly fair market value of the card, up to the statutory monthly limit, from the employee’s gross income. For purposes of determining whether the card’s value exceed this limit, one twelfth of the value of the annual card was attributable to each month for which it was valid. Provided the card was deactivated for any employee who ceased to be eligible for the card, the value of the card would not be included in the employee’s gross income or wages for the months during which the card was deactivated. (IRS Letter Ruling 201532016, LTR Report Number 1989, August 20, 2015.)

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