Tax Benefits for Transportation Programs

Federal law now allows employers three ways to offer their employees a commute benefit to reduce an employee's cost of public transportation (bus, train, ferry or vanpool). Companies can offer employees:

• a tax-free employer-paid subsidy
• a pre-tax employee-paid payroll deduction
• a combination of both of the above.

The law applies in King County when the company (or qualified third party) delivers the commute benefit to the employee in the form of a pass, ticketbook or voucher. Specifically:

When the company pays part or all of the public transportation fare and delivers the benefit to the employee in the form of a pass, ticketbook or voucher:

• The employee receives the tax-free benefit of the employer-subsidized pass, ticketbook or voucher up to $230* a month.
• The employer has a tax deductible business expense for federal taxes.
• The employer may claim a commute trip credit on Washington State B&O or Public Utility Tax equal to 50% of benefit cost up to $60 per employee per year. Contact Washington State Department of Revenue [external link] for additional information.

When the employee pays part or all of the cost of public transportation and buys or receives the pass, ticketbook or voucher from the employer:

• The employer can allow the employee to pay via a pre-tax payroll deduction, up to $230* a month.
• The employee saves federal withholding and FICA payroll taxes on the amount deducted.
• The employer saves paying FICA on the amount deducted pre-tax.
• If the cost of the transit pass or voucher exceeds $230, any amount over $230 can be deducted from employee wages on an after-tax basis.

*When the company and employee share the cost of the pass, ticketbook or voucher, the total combined tax-free and pre-tax amounts may not exceed $230 per month per employee.

Use Metro's Pass Sales links to place an order for transportation passes. It's the way to take advantage of the commute tax benefits allowed by the IRS and which are available to employees only through a company program. Some companies opt to use a third party to administer the benefit.

Employers are encouraged to consult a tax advisor or other professional for detailed information regarding the tax implications of commute benefits and incentives.

Links

• IRS regulations on Qualified Transportation Fringe Benefits see the 2001 Federal Register [.PDF 156kb 11 pages]
• For additional assistance contact Employer Services by e-mail employer.program@kingcounty.gov or by phone 206-263-3444.

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