In the past, it was thought that mass transit was the answer to reducing CO2 and traffic during the work week. Many people, especially females and the elderly hesitate to use mass transit in the early morning or late evening. This is true, especially in high-crime areas like Downtown Los Angeles. For this type of taxpayer, avoiding the Big Blue Bus and jumping in a car or riding a bike may have seemed like an improvement for maximizing their safety. Historically, many American companies would reimburse bicycle commuting expenses (and also riding the bus sometimes) to their employees for biking regularly as their mode of transportation to and from Work.
The Back and Forth of Complicated Bicycle Commuting Benefits
The IRS treated these qualifying reimbursements as excludable income (tax credits) for a while. But then, a suspension period was voted into law. So with the stroke of a pen, these bicycle commuting benefits were suspended, and the actual exclusion no longer existed. But once again, in 2021, policy changes and a focus on active travel programs drove a paradigm shift in towns and cities here for a tax reason again. The Commonwealth also experienced mass, forced immigration (The Great Reset) and a reduction in automobiles to meet civil transportation needs. In the US, these transit benefits back after the passage of Section 90436 of HR 2, called the Moving Forward Act. Once again, eligible bicycle commuting was excluded from the employee’s income as taxable compensation.
Many governments and private employers actively seek ways to encourage more individuals to commute by bicycle or on foot, purportedly allowing society to evaluate when and where motor vehicles remain necessary. As remote Work becomes increasingly integrated into people’s lives, the traditional structure of the workweek is evolving, with flexible working arrangements becoming more prevalent, allowing qualified bicycle commuting to be reimbursed by your boss in some cases.
However, the unavailability of public transportation and quieter urban roads has led to an unforeseen increase in cyclists, regardless of changes in personal circumstances. States in the US are experimenting with ways to promote travel to Work and other activities by bike as well as their own qualified transportation fringe benefit scheme.
To further stimulate this growth in active travel, the UK government introduced the Fix Your Bike Voucher Scheme, covering the cost of repairs and servicing for neglected bicycles. With these developments, opportunities for cycling as a form of exercise have become more accessible and are being embraced by many.
However, there has been a back-and-forth push to increase and then limit the bicycle commuter benefit. Below, California and Texas bicycle lawyer Michael Ehline will try to explore the potential benefits of such an initiative for both the employer and the employee here and abroad. This article will delve into the advantages of paying employees to commute by bike and highlight its negative and positive impacts on performance, health, and overall job satisfaction.
Bike To Work Schemes in the USA
Enhanced Employee Performance and Output
One of the significant benefits of incentivizing bike commuting is the potential for improved employee performance and productivity. By incorporating exercise into their daily routine, employees who use bicycles as their primary mode of transportation are likely to arrive at the office more energized and mentally alert. Regular physical activity has enhanced cognitive function and concentration, increasing focus and productivity throughout the workday. This heightened level of performance can positively impact the quality of Work produced, contributing to the company’s overall success.
Health and Well-Being
Promoting bike commuting benefits employee performance and improves overall health and well-being. Cycling offers a built-in exercise routine, ensuring employees engage in physical activity before and after work hours. This eliminates the need for dedicated gym sessions or exercise time outside of Work, freeing up their leisure time for other activities or personal commitments.
Regular exercise has numerous health benefits, including reduced risk of chronic illnesses, improved cardiovascular fitness, and increased mental well-being. By integrating movement into their daily routine through bike commuting, employees are more likely to experience improved physical fitness, reduced absenteeism due to illness, and an overall better quality of life. When the state or employers limit bicycle benefits (income tax withholding or pre-tax income), it is thought by many on the left that any commuter benefits will be laid waste.
Job Satisfaction and Company Culture
Another essential aspect to consider is the impact of bike commuting on employee job satisfaction and company culture. Offering incentives for bike commuting demonstrates an employer’s commitment to promoting a healthy lifestyle and work-life balance. Employees who feel supported and valued by their company are more likely to experience increased job satisfaction, leading to higher engagement and loyalty. Additionally, by encouraging a healthy and active lifestyle, companies can foster a positive and vibrant workplace culture characterized by employee well-being and camaraderie. When employees are content and fulfilled, it reflects positively on the employer, as it often translates into improved morale, teamwork, and increased productivity.
The Need for Infrastructure Investment
While paying employees to commute by bike holds significant potential, it is crucial to address the challenges related to bike commuting in the United States. Unlike countries such as the Netherlands, where cycling infrastructure is well-developed, the US often lacks the necessary bike-friendly infrastructure to encourage the widespread adoption of bike commuting. However, there is a growing recognition of the need for investment in infrastructure to support alternative modes of transportation, including cycling. Advocacy for bike lanes, bike-sharing programs, and bike-friendly infrastructure is gaining momentum nationwide.
The Financial and Environmental Benefits
Besides the positive impact on employees’ health and well-being, promoting bike commuting can also yield financial and environmental benefits for individuals and the community. Bicycles are inexpensive to purchase, require minimal maintenance, and do not require insurance costs. By commuting by bike, individuals can save on fuel expenses, parking fees, and other costs associated with traditional modes of transportation.
Moreover, cycling is an eco-friendly alternative that contributes to reduced carbon emissions and air pollution, benefiting the environment and the community at large. By encouraging bike commuting through financial incentives, companies can significantly promote sustainable transportation practices and reduce their carbon footprint.
Employer Tax Deduction Consequences in the US?
Qualified Bicycle Commuting Reimbursement and Deductibility?
Bear with us as we explain the suspension period. Before 2017, the Internal Revenue Code (IRC) Section 132(f) allowed a write-off for qualified bicycle commuting reimbursements as a specific type of fringe benefit provided by employers to employees who commuted to work by bike. These reimbursements permitted employers to offer tax-free compensation to employees for qualified bicycle commuting expenses.
To be considered a qualified bicycle commuting reimbursement, the following criteria generally had to be met:
- Commuting by Bicycle: The reimbursement must be specifically for expenses incurred by an employee for regular commuting to and from work by bicycle. It does not cover recreational or non-commuting bicycle use.
- Reasonable Expenses: The reimbursement must cover reasonable expenses directly associated with the employee’s bicycle commuting. This can include the cost of purchasing, maintaining, repairing, and storing a bicycle and bicycle-related accessories such as helmets, locks, lights, and panniers.
- Commuting Distance: The reimbursement is limited to expenses incurred for commuting a reasonable distance between the employee’s residence and the workplace. While no specific length is mentioned in the IRC, it is generally interpreted as the distance within a reasonable commuting range.
- Exclusion Limits: The total amount of qualified bicycle commuting reimbursements that an employee can receive from an employer is subject to certain annual exclusion limits set by the IRS. These limits may change each year, so referring to the most recent IRS guidance for the applicable limits is essential.
Enter the Bicycle Commuter Act of 2021
The Bicycle Commuter Act of 2021 appears to have reversed the suspension of the bicycle commuter benefit and introduced changes to the transportation benefits structure. Employees who bicycle regularly are the ones who benefit the most from their employment taxes.
Here are the critical changes to bike transportation benefits outlined:
- Pre-Tax Deduction Benefit: The act proposed was about providing bicycle benefits as a pre-tax benefit under qualified bicycle commuting months, similar to parking and transit benefits. This means that employees can use pre-tax dollars to cover a substantial portion of bicycle commuting expenses again.
- Increased Bicycle Benefits Amount: Under the act, employees would be eligible to receive a bicycle benefit of up to 30% of the parking benefit. These employee benefits would allow for a higher financial incentive for bicycle commuting, with the specific amount currently set at $81 per month (subject to change).
- Coordination with Other Benefits: The act allows employees to use the bicycle benefit in conjunction with transit and parking benefits as excluded federal income. Individuals can use multiple bicycle benefits to maximize their savings and lessen their tax consequences.
- Inclusion of Bikeshare and Electric Bikes: The act expands the employer deduction and employee tax credit eligibility criteria for the bicycle benefit by including bike-share programs. Additionally, it clarifies that electric bikes are also eligible for reasonable expenses incurred, recognizing the growing popularity and use of electric bicycles for commuting purposes.
Riders must understand that at least 80% of their ridden mileage must have transported employees between home and their workplace.
CAVEAT: Reimbursements for bicycle-sharing program rental fees may not qualify as nontaxable qualified bicycle commuting reimbursements. However, many employers offer them for a nontax reason as an attractive employee benefit. Providing reimbursements for bicycle-sharing program rental fees can help incentivize and encourage more employees to choose biking as a commuting option. Employers and the employee taxpayer must review the specific tax regulations and guidelines in their jurisdiction and consult with legal or tax professionals to ensure compliance with applicable laws regarding what they can deduct as an expense.
UK Efforts at Bike To Work?
The Benefits of the Cycle-to-Work Scheme
The Cycle to Work Scheme, introduced in the UK in 1999 as part of the Labour Government’s Green Transport Plan, offers financial benefits to employees and employers. Through this scheme, employees enjoy reduced Income Tax and National Insurance Contributions (NICs) on their pay, while employers save on their NICs. Additionally, the perceived health benefits resulting from increased physical activity can positively impact both parties.
Once employees weigh the pros and cons of participating in their employer’s Cycle to Work Scheme, they can explore a range of bicycle shops and retailers collaborating with the scheme. They can check the availability of bicycles and qualifying accessories such as locks, helmets, lights, and waterproof clothing. One condition for qualification is that the bike must be used for commuting more than 50% of the time, including electric bikes. The package value is unlimited, subject to salary and the employer’s chosen scheme.
Differentiating “Cyclescheme” from “Cycle to Work”
It is important to note that “Cyclescheme” differs from “Cycle to Work.” While Cycle to Work is a program introduced by the UK government to support cheaper and more sustainable travel, Cyclescheme is one of the competing facilities that assist with the administrative and retail aspects of the Cycle to Work program. Various companies and organizations offer Cycle to Work schemes in the UK, such as Evans Cycles’ Ride to Work scheme and Halfords’ Cycle2work. Cycle to Work has consistently aligned with the active travel strategies of successive UK governments since its inception in 1999. The latest ambition, published in 2017, aims to make cycling and walking the natural choices for shorter journeys and part of longer journeys instead of during a motor vehicle.
How Does Cyclescheme Work?
To participate in Cyclescheme, an employer must register and provide essential details and VAT numbers. Key contacts within the business are nominated, and marketing materials are made available to promote Cyclescheme to employees. Employees can search for bicycles and accessories from an approved list and apply using their employer’s Cyclescheme code. The employer verifies eligibility, ensuring that the salary sacrifice does not push the employee below the minimum wage and that the employee is over 18 (or 16 with a guarantor).
Once approved, Cyclescheme issues an invoice to the employer. After payment, the employee receives an eCertificate with a redemption code, allowing them to collect their chosen package. The employer then incorporates the salary sacrifice into the employee’s payroll, fulfilling their obligations for the duration of the hire agreement, except for ensuring the accuracy and frequency of the salary sacrifice.
Pros and Cons of Cyclescheme:
Participating in Cyclescheme offers several advantages. Firstly, it allows individuals to spread the cost of starting cycling without initially owning the bicycle or accessories (I am unsure if it helps repair costs.). Moreover, many shops accept the eCertificateredemption code, providing flexibility in selecting the desired items. Employers can also limit the credit to £1,000 to streamline administration. Employers can promote lifestyle benefits by offering the Cycle to Work Scheme and enhancing their credibility. However, it is essential to consider that participants are responsible for maintenance and repairs during the hire period, as they have a leased bicycle.
Employers must bear certain costs when implementing the Cycle to Work Scheme. They are required to pay for employees’ bicycles upfront, which can increase the workload for HR departments. Additionally, the scheme necessitates coordination between PAYE and payroll systems. Employers may need to upgrade facilities to accommodate showering, changing, and secure bicycle storage areas.
Some employers limit the maximum amount employees can apply for for pedal power. Requests exceeding £1,000 may require authorization from the Financial Conduct Authority, which can entail additional administrative burdens. Consequently, some employers opt to avoid these costs and complexities associated with the scheme.
The amount individuals can spend on the Cycle to Work Scheme depends on their employer’s policy. Technically, there is no limit, but employers are not obligated to offer an amount exceeding £1,000. However, employers often provide higher limits if administrative concerns are not a factor.
Determining whether the Cycle to Work Scheme is worth it depends on an individual’s investment in cycling. If one seeks a cost-effective commuting option without significant upfront expenses, is comfortable with hire agreements and end-of-hire options, and is willing to participate in a salary sacrifice arrangement, the scheme can be beneficial. Notably, cycling contributes to improved personal health and reduced commuting costs. Participants can save money in the long run on bicycle acquisition and accessories. If an individual chooses to purchase the bicycle at the end of the hire agreement, the total cost would include the salary sacrifice amount, the agreed-upon value, and an ownership fee.
As of August 2021, approximately 50,000 employers, including multinational companies, have signed up for Cyclescheme. These organizations possess economies of scale, sophisticated payroll departments, and facilities that accommodate infrastructure changes. They prioritize corporate responsibility by empowering a healthier workforce and reducing emissions. However, for small and medium-sized enterprises (SMEs), offering this type of employee benefit can still be crucial in attracting high-quality employees, despite fixed costs and potential payroll challenges.
It is essential to consider additional costs associated with cycling, such as repairs, maintenance, and replacement of components. One should also consider the potential need for colder, darker, and wetter weather gear. In both instances, the salary sacrifice will continue if the bicycle is not used during specific periods, and additional commuting expenses may arise. Suppose an employee leaves their employer before the end of the hire agreement. The outstanding balance may be deducted from their final salary or require a separate settlement if it exceeds the last paycheck.
Getting started with Cyclescheme requires the employer to register, while employees/taxpayers need to submit the employer’s code, payroll number, and bicycle budget to qualify. Once set up, employees can explore equipping bicycles and accessories from approved suppliers. Timing can be significant, as some suppliers offer sales or discounts on qualifying equipment during specific periods. Before implementing any deductions scheme, employers should consider their size, flexibility, business objectives, and willingness to invest and reimburse. Cyclescheme provides comprehensive guides and FAQs to assist employers in the setup process and address any concerns that may arise.
Qualified Bicycle Commuting Reimbursements Have Great Advantages
In conclusion, paying employees [or crediting them on their taxes] for biking can have numerous advantages for employers and employees here and in the UK under Cyclescheme. From improved performance and increased job satisfaction to enhanced health and reduced environmental impact, the benefits and deductions can make life easier for employees and employers.