United States: Can Employees Commute Tax-Free On Uber Or Lyft?

Uber, Lyft, and their competitors, offering handy apps, responsive drivers and competitive prices, are fast becoming a favored commuter option. Many employers either subsidize employee commuter expenses or allow employees to pay for commuter expenses through payroll deductions. Under current law (Internal Revenue Code Section 132(f)) and regulation, these expenses can be tax-free (up to certain dollar limits) if they are incurred through qualifying commuter highway vehicles, van pools, transit passes, parking, and bicycles. Many employers and employees are asking: can Uber and Lyft commutes be provided tax-free?

A quick dive into the legal weeds

Of the types of qualifying commuter expenses, only the "van pool" exemption potentially applies to Uber and Lyft. Generally, the fair market value of qualifying "van pool" benefits may be excluded from an employee's income up to $255 per month (2016). Slightly different rules apply depending on whether the van pool is employer-operated, employee-operated, or "private or public transit operated."

In the case of employer-operated or employee-operated van pools, the vehicle in question must seat at least six adults (excluding the driver). In addition, at least 80% of the vehicle's mileage must be reasonably be expected to be (1) used to transport employees between their homes and jobs and (2) used on trips during which the number of employees transported for commuting is at least 50% of the vehicle's adult seating capacity (excluding the driver). This is the so-called "80/50" rule. A "private or public transit operated" van pool vehicle must also seat at least 6 adults (excluding the driver) but is not required to meet the 80/50 rule. But what's a "private or public transit operated" van pool?

The regulations say that the van pool must be "owned and operated either by public transit authorities or by any person in the business of transporting persons for compensation or hire." In a series of Information Letters (IRS Info. Letters 2014-0028, 2015-0004, and 2016-0004) the IRS suggests that the issue is factually-charged, and that a van owned by a private vendor will not automatically qualify as "private or public transit operated". Here are some key excerpts from IRS Info. Letter 2016-0004:

"The term "operate" is not specifically defined in Code Section 132 or the regulations. However, the Merriam-Webster Dictionary definition of "operate" includes "to use and control (something); to have control of (something, such as a business, department, program, etc.)."

"Thus, in determining whether a van pool is "operated" by an employer, an employee, or by a private or public transit authority, factors such as who drives the van, who determines the route, who determines the pick-up and drop-off locations and times, and who is responsible for administrative details would all be relevant factors."

What case is the IRS making here exactly? Is the IRS saying that a van pool can be "employer-operated", "employee-operated", "private or public transit operated" or possibly none of the above? Or, is the IRS suggesting that some van pools that individuals or employers consider to be "private or public transit operated" should actually classified as "employer-operated" or "employee-operated" (and subject to the 80/50 rule)? Clarification from the IRS would be most welcome.

Application to Uber and Lyft

Can employers provide or facilitate tax-free Uber or Lyft rides?

  • First, Uber or Lyft must actually be a "van pool". Uber does have an "UberPool" service, and Lyft offers "Lyft Line", which are meant to carry several passengers in the same direction and would seem to qualify.
  • Second, the vehicle used for the pool must seat at least six adults (not counting the driver). In Boston (where I live), the UberPool service currently maxes out at 4 riders (and would not qualify). In New York City, however, Uber has begun offering UberPool in six-passenger vehicles. So currently UberPool clears this hurdle, but only in some markets. (In fairness to Lyft, I was unable to easily dig up similar information on Lyft Line.)
  • Third, are UberPool and Lyft Line "private or public transit operated"? In spite of the frustratingly unclear series of IRS Information Letters cited above, signs point to "yes". IRS regulations (which trump Information Letters) require that the pool services be "owned and operated by [a] person in the business of transporting persons for compensation or hire." This test seems to be satisfied whether the "person" is the corporate entity or the individual driver.

In sum: Lyft and Uber can potentially qualify as tax free benefits, if the cars seat at least six passengers plus a driver. But read on . . .

Anything else to worry about?

Even if the "van pool" hurdle is overcome, there are some administrative issues to consider. While none of these hurdles are insurmountable, they promise to add a layer of hassle for employers. For example:

  • The IRS directs employers to provide vouchers (or something similar) to employees, which the employees may then use to pay for van pools. Cash reimbursements may be used in lieu of vouchers only if vouchers are not readily available. Employers will need to determine whether something like a voucher system can be arranged with Uber or Lyft, and if not, the employer must honor the IRS' cash reimbursement substantiation rules.
  • If the benefit is provided through pre-tax payroll deductions, advance elections (in writing or electronic) must be made by employees. The employer will need to arrange a system to do so.
  • Employers will need to figure out how to value the Uber or Lyft rides. Generally, the fair market value of the benefit is based on all the facts and circumstances. If a car seats six, but the employee rides alone, should the employee be reimbursed tax free for 1/6 of the fare or the entire fare? Or should the value be based on the value of one seat in an ordinary van pool in the employee's market? Or the entire fare paid by the employee? Note also that there are a number of vehicle valuation rules under the Internal Revenue Code that may be useful. Each employer should confer with its accountants and tax counsel on this point.
  • Finally, employers need to determine whether it makes sense to offer Uber and Lyft commuter benefits as part of a transportation benefit package. In addition to the added administrative burden, there are optics issues. Proliferation of these policies could cause commuter spending to be redirected from public transportation to Uber and Lyft, creating an argument that the practice is not environmentally forward. Employers should also consider whether any applicable state or municipal laws or ordinances might impact an employer's transportation benefits.


Based on current guidance, it appears that rides provided to commuters by Uber, Lyft and their competitors may, in some cases, be framed as tax-favored commuter benefits. However, it remains to be seen whether the IRS will take steps to curtail this practice. Employers should carefully consider IRS guidance and administrative concerns, and consult with counsel, before including Uber and Lyft in their transit reimbursement benefits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.