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Transit commuter
benefits
You can reduce your commuting costs by sheltering
a portion of your income from federal taxes.
"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
It really does pay to
ride transit!
The transit commuter benefit allows employers to give their workers up to
$110 per
month to cover transit or vanpool commuting costs as a tax-free benefit. Alternatively,
employers can allow employees to pay for commuter benefits with a payroll deduction, or
they can share these costs with employees by paying part of the commuter benefit and
letting employees pay the remainder using pre-tax dollars. No matter who pays, both will
save money by participating in this simple plan.
Employer paid benefits
Tax savings are available if an employer pays for the cost of the transit commuter
benefits. For example, an employer can buy transit passes from local transit agencies and
distribute the passes without charge to employees who sign up for the program.
Transit commuter benefits provide significant
benefits for employers as well as employees. The employer's cost of providing benefits can
be deducted as a normal business expense. Even better, unlike ordinary wage payments,
employers do not have to pay their share of federal payroll taxes on transit commute
benefits. This payroll tax savings alone is usually more than enough to cover any cost of
administering the program.
Transit commuter benefits provide an attractive
alternative to expensive parking benefits. While many companies have offered parking
benefits for years, smart employers are beginning to recognize tax-free transit commuter
benefits as an environmentally responsible way to help their employees while reducing
I-4/downtown congestion. Finally, because federal law exempts the first $110 per month in
transit benefits from federal income and payroll taxes, and generally state and local
taxes as well, the employer in this case effectively provides his or her employees with a
tax-free transportation bonus.
Employee paid benefits
Employers can allow their employees to purchase transit commuter benefits -- in
effect pay for their own transit and vanpool commuting costs -- with pre-tax dollars. This
is done by deducting the cost of the transit commuter benefits received by an employee
from the employee's paycheck each pay period.
The first $110 per month of commuting costs paid by
the employee in this way will be completely exempt from federal income and payroll taxes,
and generally state and local taxes as well. This will add up to a $15 per month ($180 per
year) and sometimes larger tax savings for most employees. Such pre-tax deductions from an
employee's pay are comparable to those often used to pay for medical benefits under a
cafeteria plan, or retirement benefits under a 401(k) plan.
The authority for employees to pay their own
transit and qualified vanpool commuting costs with pre-tax dollars is a new element of
existing law that was revised by the Transportation Equity Act for the 21st Century,
enacted into law in June 1998.
The above information provided by the
American Public Transit Association.
