UCD Directives

UC DAVIS:  VICE CHANCELLOR-ADMINISTRATION

IMPORTANT ANNOUNCEMENT TO EMPLOYEES - PLEASE READ CAREFULLY 

September 11, 1998

DEANS, DIRECTORS, DEPARTMENT CHAIRPERSONS AND CAMPUS/UCDHS ADMINISTRATIVE
OFFICERS: 

RE: Pretax Payroll Deductions for Parking and Other Transportation Costs

Effective with paychecks issued September 1, 1998, payroll deductions for
parking permits will be taken on a pretax basis. You may recall the article
printed in the August 7, 1998, issue of Dateline. This Pretax Transportation
Program will provide tax savings to you by reducing the amount of your taxable
income. The same will be true at a later date for vanpooling and transit pass
payroll deductions as explained below. 

This change for parking deductions will be automatic as of September 1, and no
action is required from you. If you do not want pretax deductions, you may
elect to have deductions taken after taxes using the procedure described below
under "Opting Out." 

As of this date, employees in the Clerical and Allied Services Bargaining Unit
(CX) are not eligible for the Pretax Transportation Program described herein.
Eligibility is subject to pending collective bargaining negotiations with the
exclusive representative. 

The Pretax Transportation Program
Recent changes in Federal tax laws have allowed the establishment of this
program, which is available to any University employee who pays for parking,
transit passes, or vanpooling by payroll deduction. Effective with paychecks
issued in September 1998, the payroll deductions for parking will be taken
on a
pretax basis. Pretax deductions for vanpooling will not be available until a
later date, pending the completion and installation of required programming
changes to the Payroll/Personnel System. An announcement will be made at that
time.
This pretax program will result in tax savings for you, the amount of which
will vary based on your tax bracket and FICA (Social Security and Medicare)
coverage.

The Parking Program
Under the pretax program, payroll deductions for parking will not be
subject to withholding for Federal income taxes and FICA taxes. The maximum allowable
pretax deduction is $175 per month. Parking deductions continue to be subject
to State income tax withholding since California has not adopted the Federal
law changes governing parking. 

Vanpooling/Transit Passes
Payroll deductions for University-sponsored vanpooling and transit passes
(when it becomes available) will not be subject to withholding for Federal income
taxes, FICA taxes, and State income taxes. Under Federal law, the maximum
allowable pretax deductions for transit passes and vanpool deductions -
whether separately or combined - is the single amount of $65 per month. There is no
pretax deduction limit for State income tax withholding.

Effects on 403(b) Plan
If you participate in the Tax-Deferred 403(b) Plan, your Maximum Annual
Contribution (MAC) amount for the plan, calculated earlier this year, will not
be systematically adjusted in 1998 based on the implementation of the pretax
parking, transit pass, and vanpooling deductions. However, for the 1999 MAC
calculation, these pretax deductions will be included as a reduction to your
gross income, which may impact the 1999 MAC amount. UC Human Resources/Benefits
will make this adjustment automatically.

Opting Out
As each phase of the program is implemented, all payroll deductions for
parking, vanpooling, and transit passes will be taken on a PRETAX basis unless
you elect to have your deductions taken on an AFTER-TAX basis using the Pretax
Transportation Deductions Enrollment or Cancellation Form (UPAY 884), which is
available from campus Transportation and Parking Services (TAPS), UCDHS
Parking and Transportation Services, the campus Payroll Office and on the Internet at:

		www.ucop.edu/payroll/forms.htm 
		
These forms will be processed on a prospective basis subject to normal payroll
deadlines. 

TAPS, UCDHS Parking and Transportation Services, and the campus Payroll Office
can answer any questions that holders of parking permits may have.

Dennis Shimek
Associate Vice Chancellor-
Human Resources & Risk Management

98-096

Attachment

*************************************************** 
University of California
Financial Management
August 28, 1998



Procedures Governing Implementation
of Pretax Transportation Program


Questions and Answers


The following questions and answers address the establishment of pretax
payroll deductions for employee parking, vanpooling, and transit passes authorized
under the University's Pretax Transportation Program. 

Definitions

1.     What types of parking, vanpooling, and transit pass expenses qualify
for pretax deductions?

Parking

          Parking expenses eligible for pretax deduction include expenses paid
by an employee to park on or near the University's premises or at a location
from which an employee commutes to work by carpool, vanpool, or mass transit.

Vanpooling

          Vanpooling expenses eligible for pretax deduction include expenses
paid by an employee to commute to and from the workplace in a highway vehicle
with a seating capacity of at least seven adults, including the driver.

Transit Passes

          Transit pass expenses eligible for pretax deduction include expenses
paid by an employee for any purchase of transit passes, whether at a discount
rate or the base rate, to commute to and from the workplace. Such passes must
entitle the holder to transportation on mass transit, such as buses, railcars,
ferries, etc. 

Eligible Employees

2.     Do these pretax deductions apply to all employees? 

          Yes, except for employees in the Clerical and Allied Services (CX)
bargaining unit, pending further negotiations with the exclusive
representative
of this unit.

Effective Date

3.     When will these deductions be made available on a pretax basis? 

          Parking deductions will be taken on a pretax basis effective with
paychecks issued September 1, 1998. Campuses electing to establish transit
pass deductions also may take these deductions commencing September 1, 1998.
Vanpool deductions will be taken on a pretax basis at a later date, pending the
completion and installation of required programming changes. Because some
campuses have existing vanpool deductions that exceed the IRS monthly limit,
the Payroll/Personnel System will require programming changes to ensure that
these deductions are taxed correctly.

Tax Limits

4.     Is there a limit on the pretax deduction amount an employee may request
for parking?

          Yes. Under IRS regulations, the amount of parking expenses an
employee may exclude from his income is limited to $175 per month. This limit
is not affected if an employee also wants to establish pretax deductions for
vanpooling or transit passes. 

5.     What is the limit on the pretax deduction amount an employee can
request for vanpooling and transit passes? 

     The IRS limit for vanpooling and transit passes is $65 per month. One
limit applies whether an employee has pretax deductions for one or both types
of expenses. There is no exclusion limit for State income tax withholding for
either vanpooling or transit pass deductions. 

6.      If the value of an employee's pretax deduction does not exceed the
limit in any month, may the unused portion of the exclusion be carried over to
subsequent months?

     No. The limit is applied on a monthly basis. Any unused portion of the
exclusion can not be carried over to another month. The pretax deduction
established for an employee must reflect her actual expenses, up to the IRS
limit. Thus, for example, if an employee pays $50 a month for parking, then
she is entitled to a pretax deduction of only $50.

Withholding Rules

7.     What are the withholding rules related to these pretax deductions?

          Pretax deductions for parking will not be subject to withholding for
Federal income taxes and FICA taxes (i.e., Social Security and Medicare).
However, parking deductions are subject to withholding for State income taxes.
Vanpooling and transit pass deductions are not subject to withholding for
Federal income, FICA, or State income taxes. 

8.     Why are parking deductions subject to withholding for State income
taxes?

          Since the State of California has not adopted the Federal tax code
changes that allow pretax parking, these deductions are still subject to
withholding for State income taxes. The exclusion for vanpooling and transit
passes, however, conforms to the State's ridesharing laws; those deductions
are therefore not subject to withholding for State income taxes.

9.     What action should an employee take if he does not want his parking,
vanpooling, or transit pass deductions taken on a pretax basis? 

     The employee should obtain a Pretax Transportation Deduction
Enrollment/Cancellation (UPAY 884) form from his Payroll or Parking Office.
This form will be processed on a prospective basis, subject to normal payroll
deadlines.

10.     If an employee elects to have her deductions taken on an after-tax
basis, can she change her deductions back to pretax at a later date?

          Under the IRS regulations governing these deductions, employees can
change their pretax election at any time. Campuses may impose limits, however,
on the frequency of such changes, if desired. 

Retirement Benefits

11.     Will these pretax deductions affect an employee's Maximum Annual
Contribution (MAC) amount?

          The 403(b) Plan MAC amounts, calculated earlier this year, will not
be systematically adjusted based on the implementation of the pretax parking,
vanpooling, and transit pass deductions. However, for the 1999 MAC
calculation, these pretax deductions will be included as a reduction to an employee's gross
income, which may impact his 1999 MAC amount.

12.     Will an employee's participation in the pretax program affect her HAPC
(Highest Average Plan Compensation)? 

          No. Participation in these pretax deductions will not affect the
salary used in calculating an employee's benefits under the University of
California Retirement Plan. 

13.      Will participation in the pretax program affect an employee's Social
Security benefits?      

          Because pretax deductions lower the eligible earnings on which
Social
Security benefits are based, there could be an effect on an employee's Social
Security benefits. If the deductions cause an employee's earnings to fall
below
the Social Security wage base, then any Social Security benefits received by
the employee or his family could be reduced if these earnings are used to
calculate those benefits. 

Other

14.     If an employee pays for her parking, vanpooling, or transit passes by
cash, check, or credit card, is she entitled to any tax benefits?

     No. Only employees who pay for these transportation expenses through
payroll deduction qualify for pretax benefits. Employees who pay for parking,
vanpooling, or transit passes by cash, check, or credit card do not qualify
for tax benefits.

15.     How can an employee establish payroll deductions if he parks
off-campus in a private lot?

          Campuses have two options for establishing pretax parking deductions
for employees who park off-campus: 

*     A campus could contract with specified parking vendors to set up payroll
deductions for the employees using those vendors, or 

*     A campus could establish a parking reimbursement account for each
employee (similar to the UC DepCare arrangement) that would be funded by
pretax payroll deductions. An employee would then need to submit parking receipts to
be reimbursed from the account. 

          This issue will need to be addressed by each campus locally,
depending on the volume of off-campus parking. 

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