Commuter Tax Benefits
How does it Work?
Internal Revenue Code Section 132(f) allows employees to pay for their commuting expenses using pre-tax dollars they use transit, vanpools, commuter parking or a bicycle. The Commuter Tax Benefit lets employees use up to a monthly maximum in tax-free dollars for the following:
- $255 for transit or vanpools
- $255 for commuter parking
- $20 for bicycling
Employees who pay to park at transit can receive both a commuter parking and transit benefit for a combined total up to $510 per month.
What Services are Available?
What transit services are eligible?
- Transit: Any type of privately or publicly operated transit service is eligible:
- MBTA bus
- MBTA subway
- MBTA commuter rail
- MBTA The Ride paratransit
- Shuttles and vanpools operated by transit providers
- Commuter Boats and Inner Harbor Ferries
- Greyhound, Peter Pan, BoltBus, Megabus and Plymouth and Brockton companies
- Vanpools: Any type of vanpool operated on behalf of employers, by employees with their own vans, or third party vans leased by a group of employees.
- Bicycling: Reimbursement to employees for equipment, maintenance, repair, and storage expenses. Note: employees may not receive a bicycle benefit with any of the other benefits in the same month.
Boston is a great place for this Program. Many employers use the Massachusetts Bay Transportation Authority’s (MBTA) Corporate Pass Program as an easy and free way to provide the benefit to employees. Employers easily enroll their employees online and manage the Program through the MBTA’s Online Management System. Employees who use Charlie Cards automatically get their monthly passes loaded onto their cards each month. Charlie Tickets are mailed out each month to employees who need them for their commute such as for the commuter railroad. To get more information on this popular program click here.
What are the Benefits?
Employers Save on Taxes!
When you let your employees pay for their commute with their salary before taxes (pretax) you avoid paying payroll taxes on that amount. That means you avoid paying the 7.65% for Social Security and Medicare taxes (FICA) for a savings of approximately $100 per participating employee per year. That can add up quickly as the number of employees who use the benefit increases.
Employer Payroll Savings Based on Number of Employees Participating in the Commuter Benefits Program
|Number of Employees||Deduction per month*||Total per year||Total Payroll Savings*|
*Please note: $255 represents the maximum deduction allowable under federal guidelines; total payroll savings are estimated and actual tax savings will depend on individual and employer's tax rates.
It’s a Great Way to Offer a Transit Benefit to Your Employees
Offering transit, vanpool, or bicycling tax benefits encourages commuting by these modes and helps to reduce congestion by encouraging drivers to try sustainable transportation options. It’s a great benefit for recruitment, relocation and retention.
How do I get Started?
Setting Up a Commuter Tax Benefit Program In a Few Easy Steps
There are a few important steps that employers should consider in setting up a successful Commuter Tax Benefit program.
- Survey your employees to find out how they commute to work. This will allow you to know which benefits you want to offer and the level of interest in the Program.
- Decide how you will fund the Program and at what amount – pretax, subsidy or share the cost. Employers have complete control over how to pay for the benefit. You can let your employees pay for the benefit each month out of their pretax salary. You can pay the full amount as a subsidy up to the monthly tax-free limits. Or, you can assist your employees by paying a portion of the monthly benefit as a subsidy and let employees pay the rest from their pretax salary. Whatever works best for you!
- Decide Who Will Administer Your Program:
Small companies with only a few employees frequently administer the program themselves. Depending on the way your employees commute you can arrange for the appropriate means by buying transit passes, distributing vouchers good on transit and vanpools or even arranging for direct payment of their expenses.
Medium to Large Companies — Most medium size companies and virtually all large companies have too many employees to comfortably administer the program themselves. Fortunately, there are various benefit providers and third party administrators who can handle all aspects of administration, from enrolling to distributing benefits. And your pretax savings often offsets the cost of paying for this service.
In choosing an administration service keep these selection guidelines in mind:
- Does the provider handle all the locations where your facilities are located?
- Are the fees charged competitive?
- Does the provider offer all benefits?
- What are the startup costs, and how long does it take to set up a program?
- Does the provider use benefit products that are convenient, easy to use and compliant with IRS requirements?
- What reports and information are available?
- Will the provider market the program to your employees?
- Enjoy the costs savings and employee satisfaction!