Employer/Commuter Tax Benefits
"Employer/Commuter Tax Benefits" are like money in the bank. Employers save on payroll related taxes. Employees save on federal income taxes. In 1998, the Transportation Equity Act for the 21st Century (TEA-21), a new federal transportation bill was passed that provides employers and commuters new "tools" for saving money while reducing congestion and decreasing air pollution. You should, however, always consult with your company's accountant and/or tax attorney to ensure compliance with tax codes and filing requirements, especially as they relate to your particular industry and jurisdiction (state). Overview: As of 2006, employers may offer expanded tax-favored benefits to their employees. Section 132(f) of the federal tax code enables employers to ease employee's commuting costs in several ways. - Employer-financed employers may underwrite their employees transit or vanpool commuting costs, up to $105 and offset qualified parking expenses up to $205 per employee, per month.
- Employer perspective costs are a deductible business expense.
- Employee perspective transit, vanpool or parking benefits are free of all payroll and income taxes.
- Employee-financed employers may allow employees to set aside pre-tax dollars to purchase transit passes, pay vanpool fares, and to cover qualified parking costs. Monthly limits are $105 per employee, per month for transit or vanpools expenses, and $205 for parking.
- Employer perspective employers save payroll taxes on the funds their employees set aside pre-tax, typically 7.65%.
- Employee perspective employees save payroll and federal income taxes on the set-aside funds. For employees in the 25% tax bracket, for example, that savings represents over three month's worth of commuting costs.
- Combined employers may choose to underwrite a portion of employees' transit, vanpool, or parking costs and permit employees to set aside pre-tax funds for remaining costs, up to the monthly limits.
- Employer perspective the portion of costs used to underwrite commuting costs are a deductible business expense. Employers save payroll taxes (7.65%) on the portion their employees set-aside on a pre-tax basis.
- Employee perspective the employer-financed portion of transit, vanpool, or parking costs are tax-free. Employees save payroll and income taxes on the portion set-aside on a pre-tax basis.
(Courtesy of MassRIDES and URS Corporation)
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