In Information Letter 2013-0032, released September 27, 2013, the IRS announced that expenses incurred by employees in using bike share programs do not qualify for the income exclusion available for qualified transportation fringe benefits under Section 132 of the Internal Revenue Code (IRC). As a result, employers cannot exclude expenses for bike share programs from employees' gross income.

The Section 132 exclusion for qualified transportation fringe benefits applies to:

(See Practice Note, Fringe Benefits under IRC Section 132.)

The IRS reasoned that expenses for bike share programs cannot be considered transit passes because the programs are not mass transit facilities (as required under the transit pass definition). The IRS also concluded that bike share program expenses are not qualified bicycle commuting reimbursements, which generally include an employee's reasonable expenses:

According to the IRS, bike share program expenses are not expenses for the purchase of a bicycle or bicycle improvements, repair or storage.

In addition, the IRS noted that qualified bicycle commuting reimbursements (unlike other qualified transportation benefits) cannot be excluded if employers provide them in place of pay (that is, the benefit cannot be provided through a salary reduction agreement).

Bike share programs have gained increasing popularity in the United States, with significant programs either introduced this year or planned in cities such as Chicago, San Francisco and New York. From the IRS' perspective, however, bike share programs will not qualify for the favorable tax treatment afforded to certain other types of transportation benefits (including treatment as a pre-tax benefit) without action by Congress.