It Pays To Ride Public Transportation
“Rarely does an employee benefit save both the employee and employer money. But through a great twist of the tax code, you may be able to commute with tax free dollars, and save your boss tax dollars, too.”
-- Kiplinger’s Personal Finance Magazine
Reduce Your Commuting Costs by Sheltering a Portion of Your Income From Federal Taxes!
The Program in Brief
Transit commuter benefits provide an attractive alternative to expensive parking benefits. Smart employers are recognizing the transit commuter benefits as an environmentally responsible way to help their employees. As an added benefit, employees arrive at work relaxed because they’ve avoided congested rush-hour drives. It’s a valuable fringe benefit that’s affordable. Finally, because federal law exempts the first $230 per month in transit benefits from taxes, the employer effectively provides employees with a tax-free transportation bonus. Employers can also share the cost of commuting with their employees by paying for part of the transit commuter benefit and allowing employees to pay for the remainder using pre-tax dollars. That can be as much as $2,760 a year in pre-tax savings!
The law was last revised on February 17, 2009, by the American Recovery and Reinvestment Act of 2009.
Employer-paid benefits are passes, vouchers, or sometimes just cash provided to employees to cover their transit or qualified vanpool costs. Employers pay for employees to commute by transit or vanpool, up to $230/month and can deduct the costs for providing such benefits to they avoid payroll taxes on such benefits! This payroll tax savings alone is usually more than enough to cover any cost of administering the program. Providing transportation benefits offers significant savings over offering the equivalent dollar value in the form of a salary increase.
Employee benefits are the same benefits but are paid for by the employee electing to exchange taxable wages or salary for a tax-free transit benefit. In other words, employees don't pay income taxes on these benefits, except on the amount in excess of $230 per month. Employees will save money since the amount exchanged for transportation benefits is not subject to income tax (up to the specified monthly limits).
Employers can provide a portion of the cost of taking transit or vanpooling as a tax-free transit or vanpool benefit. The federal tax code provides a variety of financial incentives related to commuter benefits for employers and employees. In addition, several states now offer tax credits for Commuter Choice programs. Contact an attorney or accountant for specific tax guidance.
Who Is Eligible?
- Private employers
- Non-profit organizations
- Public agencies
- Federal government employees & members of military services
Federal government employees in the National Capital Region receive the transit benefit under SAFETEA-LU. Under an Executive Order signed in April 2000, federal employees in other areas of the U.S. are allowed to spend up to $230 per month of their pre-tax income for transit benefits.
Self-employed individuals, partners, 2-percent shareholders of corporations, sole proprietors, and other independent contractors are not eligible under IRS rules.
How It Works
A transit commuter benefit program is simple to administer. It doesn't require extensive record keeping. When passes, vouchers, or similar fare media are available, employers need only keep a record of the purchase of the
media. In other cases, the employer must maintain records that reasonably demonstrate that any cash it pays to employees is being used to cover their actual transit or vanpool commuting costs. Employers may offer different
transportation fringe benefits to their employees. Nondiscrimination rules do not apply to these benefits. Although transit commuter benefits cannot be offered as part of a cafeteria plan, employers may use the same forms and administrative procedures for a transit commuter benefit program that they use for their cafeteria plan. Employers may also rely on other parties to administer some or all of their transit commuter benefit program.
Where to Start
Call Shore Transit for more information on the commuter benefit program TODAY!