IG: Transit benefits for MBTA employees could be taxable

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BOSTON (SHNS) – MBTA employees’ transit benefits, such as free access to the state’s public transit system, could be taxed, according to the inspector general’s office.

In a letter sent to state transportation officials on Wednesday, an official with the inspector general’s office said transit benefits are taxable, unless the MBTA qualifies for an exclusion from the Internal Revenue Service.

“We further found that currently, the MBTA does not calculate and report transit fringe benefits and does not have a system in place to determine their value,” wrote Sally Atwell, director of the internal special audit unit focusing on the state transportation department, who reports to Inspector General Glenn Cunha.

“If the determination finds that no exemption or exclusion applies to certain employees, we recommend that the MBTA implement appropriate methods for tracking employees’ use of the benefit, and then comply with all applicable tax requirements,” she added.

All MBTA employees receive free access to the entire transit system, which includes subways, buses, the commuter rail and several commuter boat lines. The MBTA, which received approval for a new round of fare hikes Wednesday, is the nation’s fifth largest transit system and has about 6,000 employees.

MBTA spokesman Joe Pesaturo said the agency has been in communication with the IRS about receiving a ruling on the issue. “It’s the MBTA’s position the Transit Benefit fits under the exclusion and is not taxable to the Employee,” he said in an email.

Pesaturo and Atwell’s letter pointed to an IRS regulation that says an “exclusion applies to a service you provide to an employee if it does not cause you to incur any substantial additional costs.” Generally, the regulation adds, no-additional-cost services can be airline, bus or train tickets.

MBTA employees have ID badges, complete with a smart-card feature, providing them with access.

“Although all employees at the MBTA are provided with unlimited access to all transit services, not all employees utilize the transit system for commuting and/or personal use, if at all,” Atwell wrote in the letter, which was sent to Paige Scott-Reed, the state Transportation Department’s general counsel, as well as Transportation Secretary Rich Davey and MBTA General Manager Beverly Scott.

The letter stems from a review of MBTA transportation benefits between Jan. 2, 2013 and Dec. 31, 2013. Atwell said the methodology included discussions with MBTA managers, the office of the state comptroller and an analysis of fare system reports.

State and federal tax codes require the MBTA to calculate and report the value of each “qualifying fringe benefit” that’s provided to employees and is in excess of federal or state exclusion limits.

“Unless an exclusion applies, free access to the public transportation system is such a taxable fringe benefit,” Atwell wrote. “Consequently, for each employee, the MBTA would have to calculate and report as income, the amount of the transit fringe benefit that exceeds state and federal exclusion limits.”

The 2014 federal and state exclusion limit for qualified transit benefits is $130 per month, her letter said.

Recommendations for the MBTA in the letter, aside from working with the IRS, include possibly issuing transit passes, such as a Charlie card, to employees, instead of linking transit access to employee badges.

“Each employee would be able to choose which transit pass (if any) to receive,” she wrote. “This would allow the MBTA to track exactly which transit services each employee uses, and would ensure that employees are taxed for only those services.”

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