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This letter is in response to your July 7, 1998 request for an
advance decision whether agencies may develop programs that permit
their employees to take advantage of recent changes to the tax code
authorized by the Transportation Equity Act of 1998 (TEA), Pub. L.
No. 105-178. For the reasons stated below, they may.
Pursuant to 5 U.S.C. 7905(b), the head of an agency may
establish programs to encourage employees to commute by means
"other than single-occupancy motor vehicles." Although the statute
gives several examples of the types of programs agencies may
establish, it does not limit an agency head's discretion to approve
any program reasonably related to the stated goal. Pursuant to this
authority, some agencies use appropriated funds to provide a direct
transit subsidy to employees. The TEA amends the tax code to permit
employees to receive these and other types of so-called "qualified
transportation fringe" benefits in lieu of salary. See
Pub. L. No. 105-178, 9010. The use of these types of benefits
is consistent with the goal stated in 5 U.S.C. 7905(b). Therefore,
agencies may use appropriated funds to establish and operate
programs that allow employees to elect to receive qualified
transportation subsidies in lieu of salary. Whether an agency's
particular program meets the requirements of the TEA, however, is a
matter for the Internal Revenue Service, and not the Office of
An employee's decision to receive the transportation fringe
benefit will not affect the employee's basic rate of pay, which is
the rate of pay fixed by law or by administrative action. 5 C.F.R.
550.103. Thus, to give some examples, an employee's rate of pay for
purposes of overtime, lump-sum annual leave, and calculating an
employee's retirement annuity would be based on the employee's rate
of basic pay without regard to whether the employee elected to
receive transportation fringe benefits.
If you have any questions regarding this response to you letter,
please call me at 606-1700.
Assistant General Counsel