With the advent of ridesharing services like UberPool and Lyft Line Ride, carpooling to work has become an attractive option for city dwellers and commuters without access to mass public transportation. So the question arises, can you use your tax-free commuter benefit dollars for ridesharing services like Uber and Lyft? Unfortunately, for the forward-thinking commuter, the answer is unclear.
The qualified transportation benefits exclusion applies to:
- A ride in a commuter highway vehicle between the employee’s home and workplace;
- A transit pass;
- Qualified parking; or
- Qualified bicycle commuting reimbursement.
Uber and Lyft are neither “qualified parking” nor “qualified bicycle commuting,” so that leaves considering Uber and Lyft as either a “commuter highway vehicle” or “transit pass” as paths to tax-free reimbursements. Under IRS Publication 15-B, a commuter highway vehicle is any highway vehicle that seats at least six adults (not including the driver), that you reasonably expect at least 80% of the vehicle mileage will be for transporting employees between their homes and work place with employees occupying at least one-half the vehicle's seats (not including the driver's). A transit pass is any pass, token, fare-card, voucher, or similar item entitling a person to ride, free of charge or at a reduced rate, on mass transit, or in a vehicle that seats at least six adults (not including the driver).
To fit under either the “commuter highway vehicle” or “transit pass” categories of the transportation rules, the vehicle must be one that “seats at least six adults (not including the driver).” But for large SUVs, vans, or buses, most Uber and Lyft vehicles will not meet this part of the requirement. Assuming, however, that the Uber or Lyft vehicle is one that can carry at least six adults not including the driver, there are other requirements that they would likely struggle to satisfy.
As a “commuter highway vehicle,” you must reasonably expect that at least 80% of the vehicle mileage will be for transporting employees between their homes and places of work with employees occupying at least one-half the vehicle's seats (not including the driver's). This requirement would be almost impossible to track for an Uber or Lyft vehicle, unless the vehicle almost exclusively drives UberPool or Lyft Line Ride for individuals going to/from work – Uber and Lyft set forth no such requirement. Alternatively, if you try to fit Uber and Lyft within the “transit pass” category, they would likely struggle to show that they are offering “any pass, token, fare-card, voucher, or similar item entitling a person to ride, free of charge or at a reduced rate.”
The best assumption is that Uber and Lyft are hoping to meet the van pool exception under 26 CFR 1.132-9 but it is unclear whether they meet any of the available IRS van pool definitions. "Private or public transit-operated van pool transit passes" is the closest fit under the rules, but the IRS has yet to provide clear guidance on this matter. Given the narrow window for UberPool and Lyft Line Ride to be compliant with the commuter benefit rules, best practice is not to seek reimbursement for, or reimburse transportation expenses incurred via Uber, Lyft, taxis or other ridesharing services without the advice of legal counsel or until the IRS issues further guidance.