UPDATE: Delay on 22nd btwn Kirkham and Lawton has cleared. The IB 7 is resuming regular route. https://t.co/U5IA5Cfr6A (More: 4 in last 24 hours)

Muni Transit Pass Taxes

Understanding Whether to Opt-In or Opt-Out for 2020:

Muni Passes for Spouses, Dependents, and Retirees are Considered as Taxable Income

Overview

Why: Federal and State laws treat certain employee fringe benefits as income, including transit passes

What: Federal and state regulations treat Muni passes for family members of SFMTA employees (and for SFMTA retirees) as taxable income

When: Starting January 1, 2020 active SFMTA employees will be taxed for any family-member Muni passes that they have requested; Retirees must declare the benefit annually on their tax returns

Frequently Asked Questions (FAQ)

Q. As an active SFMTA employee, is my personal use of Muni taxable?

A. No. The Internal Revenue Service only treats transit passes as a taxable “transportation fringe benefit” for employees if the value of the pass is more than $265 per month. Since the fair market value of a Muni transit pass is currently $81 per month, active SFMTA employees do not have to pay income tax on their personal Muni travel.  [IRC section 132(f)(2)]

Q. As an active SFMTA employee, are the free Muni passes I get for my family members taxable?

A. Yes. Starting January 1, 2020 SFMTA will begin treating Muni transit passes for spouses and dependents of SFMTA employees, as well as for SFMTA retirees, as taxable income according to the Internal Revenue Service [IRS Reg. § 1.132-9].

Q. How much tax will I have to pay for the family-member Muni passes I receive?

A. Since the fair market value of a Muni pass is $81 per month for an adult, and $40 per month for the Youth Pass, when an active employee opts in to receive any of these passes for their family members, the payroll department will add this imputed income to the employee’s gross wages each month in 2020 based on the value of each pass.

This includes both income tax (Federal and State) and employment taxes (Social Security and Medicare).

Q. Can I choose which months I want to have passes for my spouse and/or dependents?

A. No. Because the Muni Pass is an annual sticker, you can either choose to have the pass for that family member for the entire year, or you can choose not to have a sticker at all.

Q. As a retiree from SFMTA, do I have to pay taxes on my Muni pass?

A. Yes. For SFMTA retirees receiving a monthly pass, their W-2 from the City and County of San Francisco will show the imputed income and appropriate taxes based on the Fair Market Value of the retiree pass ($81 per month for an adult pass or $40 for a 65+ Pass).

Q. Are there any non-taxable options for dependents or retirees?

A. Yes. Residents of San Francisco can visit the Free Muni web pages to determine if they are eligible to obtain free Muni passes for their children age 5-18 or for themselves if they are 65 or older.

IRS Regulations

IRS regulations regarding SFMTA Transit Pass Taxation for Dependents and/or Spouses, Retirees

IRS Revenue Ruling 14-32 (PDF from IRS website)

IRS Regulation § 1.132-9         

Tax Implications for Providing Transit Passes to Active City SFMTA employees:

Generally, providing transit passes to active City SFMTA employees (as defined for purposes of the qualified transportation fringes in § 1.132-1(b)(2)(i)) is non taxable as long as the fair market value (FMV) of the pass does not exceed the annual applicable monthly limit for qualified transportation fringe benefits (IRC section 132(f)(2)) which is currently $265.00/month for 2019.

Tax Implications for Providing Transit Passes to Active City SFMTA employees’ dependents:

An employer may provide qualified transportation fringes only to individuals who are currently employees of the employer at the time the qualified transportation fringe is provided. Transit passes provided to any individual other than active City SFMTA employees are taxable. The FMV of the pass provided to family members must be included on the current employee’s Form W-2 and is subject to both income tax (Federal and State) and employment taxes (social security and Medicare).

IRS Regulation § 1.132-9, 26 C.F.R § 31.3401(a)-1 and 26 C.F.R § 31.3121(a)-1

Tax Implications for Providing Transit Passes to Retired City SFMTA employees –

Transit passes provided to retirees are taxable to the retiree and should be included on their Form W-2 and are subject to both income tax (Federal and State) and employment taxes (social security and Medicare).

The FMV of the transit pass provided in advance to an employee for any month after the employee terminates employment is included in the employee’s wage for income tax purposes.

If the employer distributes transit passes in advance to the employee for more than three months, the value of the passes for the months after the employee terminates is subject to income tax withholding and employment taxes.

If the employer is unable to withhold income taxes and employment taxes (as this is imputed income), then the employer is required to pay the retiree’s share of employment taxes. As the employer’s payment of those taxes on behalf of the retiree is a taxable benefit, the amount will need to be grossed up on the Form W-2.