The League of American Bicyclists now has a page for the Bicycle Commuter Tax Provision. The IRS recently published Publication 15-B which includes the rules for the Bicycle Commuter Benefit. Go below the rules on LAB's page for the FAQ. I'll try to summarize as best I can.
Fringe benefits are taxable (such as getting free rides in limousines, Tom Daschle) unless they are excluded by law. The bicycle commuter act passed last year excluded bike commuter benefits from an employee's taxable pay, up to $20 a month. However, if you receive the $20 bicycle commuter benefit, you can not receive any other transportation benefit such as commuter highway vehicle, transit pass, or qualified parking benefits in that same month. This is different than with transit and parking. If you want to, you can take the $230 transit benefit AND $230 in parking. But for cyclists, you can either have $20 for biking or up to $430 for using transit and driving (sigh).
Bicycle benefits can be used to replace reasonable expenses such as the purchase of, repairs to, and storage of a bicycle as long as that bicycle is regularly used to commute.
You have to be a regular employee, and use your bike for a substantial portion of travel.
Employers can give you more than $20 a month, but you have to pay taxes on everything above $20.
Bicycle commuter benefits also differ from transit benefits in that they can only be excluded if they're employer-paid. For transit benefits they can be employer-paid or employee-paid. In the second case, the employee buys transit with pre-tax dollars, similar to the way they fund a 401k or contribute to a health care savings accounts. This is not possible for bike commuters. As such, this reduces the utility of the benefit still further as employee-paid benefits help employees - by allowing them to pay for transportation with pretax dollars - and employers - by reducing payroll taxes. So only employees who's employers are willing to pay them extra will be able to deduct the benefit. (double sigh) [The Active Transportation Alliance reads this the way I do, but Accor does not.]
To help employers who are interested in giving the benefit, Accor Services is offering the commuter check for bicycling. This allows employers to buy commuter vouchers and issue them to employees just like they would for transit. "Vouchers are redeemable at dedicated bicycle shops and bicycle parking and storage locations across the country." As FABB points out, the only "dedicated bicycle shops" (Excel file) listed in the area are REIs.
So there's a long way to go before people start taking advantage of this in large numbers.
However, Earl Blumenauer just introduced HR 863, The Bicycle Commuter Choice Act, which will allow employees to receive transportation fringe benefits for the same month both in the form of transit passes and reimbursement of bicycle commuting expenses, and it would be retroactive to this year.
So that takes care of one problem, but they also need to deal with the lack of employee-paid benefits. (Does anyone know what percentage of transit benefits are employee-paid and what percentage is employer-paid?)
In the meantime, go and harass your boss for this. I don't get transit benefits from my employer, but I do get a taxable gym fee fringe benefit of $500 a year. I'm going to try and convince them to let me take either that benefit or a $500 a year bike commuter benefit (of which $480 $240 would be tax free). Let's see if that gets anywhere.