IRS Revenue Procedure 2003-85 provides the 2004 cost-of-living inflation adjustment for the qualified transportation fringe benefit monthly exclusion amounts allowed under IRC § 132(f)(2). The federal exclusion amounts for tax year 2004 are $195 per month for employer-provided parking and $100 per month for employer-provided vanpool and transit pass benefits combined. Revenue Procedure 2003-85, § 3.12. In contrast, Massachusetts follows the inflation adjustment formula allowed under the January 1, 1998 Code. As a result, the Massachusetts exclusion amounts for tax year 2004 are $200 per month for employer-provided parking and $75 per month for employer-provided vanpool and transit pass benefits combined.
Massachusetts does not adopt the federal gross income exclusion for transit pass and employer-provided vanpool benefits if the employer offers the benefit as a reduction in salary and the employee chooses the benefit in lieu of salary. The federal provision allowing the choice of salary or transit pass and employer-provided vanpool benefits was enacted on June 6, 1998, and therefore, is not incorporated into the Code as amended and in effect on January 1, 1998.
As a result, if an employee's salary and federal gross income have been reduced by the value of a transit pass or employer-provided vanpool benefit, the employer must add back the exclusion amount (in the employee's W-2) for Massachusetts tax purposes. TIR 99-23.
Commissioner of Revenue
April 8, 2004