All About the Bicycle Commuter Benefit

What is it?: Effective January 1, 2009, bicyclists can benefit from a provision added to the Internal Revenue Code, which previously covered only those commuters who used mass transit and van pools.

Now, thanks to the change in the tax law, employers can reimburse their workers who bike to work for certain bike-related expenses. These reimbursements are not included in your overall pay, so you're not getting hit with taxes on them either. Below are answers to frequently asked questions about this new benefit.

What Qualifies As A Bike Commute?

Bike commuting

The guidelines for defining what qualifies as a bike commute are pretty broad. There are no minimum number of miles, and no specified actual number of days worked or percentage that you have to achieve to qualify.

Basically it shakes out like this. You are considered a bike commuter and eligible for reimbursement of qualified expenses in a given month if you regularly use your bike for a substantial portion of travel between home and work.

The IRS does not define either "regularly use" a bike or "substantial portion," so companies are left to apply their own interpretation.

What Can I Be Reimbursed For?

Bike Spokes
Digital Vision/Andersen Ross

You can be reimbursed by your company on a tax-free basis for "reasonable expenses" you incur as a bike commuter. This can include the actual purchase of a bicycle and just about any type of accompanying equipment and accessories such as lights, racks and clothing, up to the annual limit of $240, or however much your company chooses to offer.

Also, you can be reimbursed for any expenses incurred for repair, maintenance and storage of your bike. Drop $60 on an annual tune-up at the bike shop? Covered. New tires? Covered. Gloves for riding in the fall and winter? Covered.

How Much Reimbursement Can I Get?

(c) Tracy O/Flickr

It's up to your company to determine how much it wants to offer, but the IRS law allows you to be reimbursed by your employer up to $20 per month for each month that you are a bike commuter. That's $240 per year for you liberal arts majors.

You can't pick up the bike benefit in the month when you get another qualified transportation fringe benefit, i.e., things like a transit pass, van pool benefit, or qualified parking reimbursement.

And, as it is currently written, there are no provisions in the plan that adjust the bike commuter reimbursement for inflation, unlike these other transportation benefits the IRS code allows.

Does My Employer Have to Offer this Bike Commuter Benefit?

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The main bit of bad news with this bike commuter benefit is that no, there is no requirement that employers offer this plan, and participation is entirely voluntary.

If you are going to make a case to your company that this is a benefit they should offer, you will want to think very carefully about they way you present this to them. Employers will look at this as a potential extra expense of $240 per year for each employee who might even think about riding a bike to work, so it would be helpful to show how this in fact will produce an overall cost savings to them via better health in their workers (fewer sick days, lower health insurance premiums, etc.) or savings in parking costs, etc.

How Are Bike Commuter Reimbursement Requests Substantiated?

Giant Cypress bicycle recalled by Giant and the CPSC.
(c) Giant Corporation

The IRS pretty much leaves it to companies to determine how they want to handle requests for reimbursement of bike commuter expenses. Basically, employers just have to have some sort of arrangement that verifies a legitimate expense was incurred and that has the worker requesting reimbursement within a reasonable amount of time, typically 180 days.

The IRS doesn't require companies to have a formal written plan document, but most smart employers who anticipate requests coming from its workers for the bike commuter benefit will put a policy in place that talks about how much the employer will pay for the bicycle commuter benefit, who is eligible to receive it and the procedure for requesting reimbursement of bike commuting expenses.

When Do I Get Reimbursed?

Cycleaware Mirror
(c) Cycleaware

Employers can make the reimbursement at any point during the year in which you incurred expenses as a result of your bike commute, and up to three months beyond that.

So, if you rode six months out of the year in 2009, your company could pay you at any point during that time you are riding, either on a month-by-month basis or all at once, including as late as March 2010.

Because of the administrative effort this takes to issue payments, my bet is that most companies will ask their bike-riding workers to keep a log of their bike commuting days, and to save all of their receipts and turn them in at once for a one-time reimbursement at the end of the year.

How Much Do I Have to Contribute To Take Advantage of This?

Two yellow traffic signs show
(c) David Fiedler
None. Taking advantage of this doesn't cost a thing. Companies pay the whole deal, up to $20 a month. Sometimes people think this bike commuter benefit is like other IRS benefits like flexible spending accounts, etc., where employees kick in pre-tax dollars for these expenses, reducing their overall tax liability. This is not the case here. The employer funds the entire benefit and again, offering this benefit is voluntary.