Employees save on federal income taxes. Employers save on payroll related taxes.
How Commuter Tax Benefits Work
The Federal tax code allows the use of tax-free dollars to pay for transit commuting and parking costs through employer-sponsored programs. Commuter benefits are regulated by the Internal Revenue Code, Section 132(f)—Qualified Transportation Fringe. As of February 2009, the tax code allows tax-free transportation fringe benefits of up to $230 per month per employee for transit expenses and up to $230 per month for qualified parking (including parking at BART stations. Qualified parking is defined as parking at or near an employer's worksite, or at a facility from which employee commutes via transit, vanpool or carpool). Commuters can receive both the transit and parking benefits (up to $460 per month).
Companies can offer:
- a tax-free employer-paid subsidy
- a pre-tax employee-paid payroll deduction
- a combination of both of the above.
Employee Savings
Employees who set aside income on a pre-tax basis for a qualified transportation fringe benefit do not pay federal income or payroll taxes on the income set aside. If you have a combined (local, state, federal) tax rate of 40% and spend $190 per month on BART, you will save $76 each month or $912 a year. If you pay for monthly BART parking at $63 per month, you can save an additional $25 per month or $300 per year.
If an employer chooses instead to subsidize the benefit it is actually more valuable than an equivalent raise because of the tax advantages (for example, if a subsidy of $190 is offered, this equals roughly $317 in taxable income).
Calculate your potential savings (external link)
Employer Savings
Providing pre-tax commuter benefits to employees can save payroll taxes for employers. The value of the benefit paid to employees is considered a tax-free transportation fringe benefit and not wage or salary compensation, therefore, payroll taxes do not apply. Employers can save roughly 9% in payroll taxes (including FICA, SUI, SDI and city taxes) on the amount employees set aside. If the employer chooses to offer the benefit in addition to salary, giving an employee $120 in transit benefits is thus less expensive for an employer than raising the employee’s salary by $120.
Calculate your company’s potential savings (external link)
How to Get Started
Commuter Benefit programs are easy for your employer to implement. The following links will take you to some of the providers who can work with employers to make the appropriate arrangements. In addition, benefit management companies such as ADP, Ceridian, SHPS, Fringe Benefits Management, etc. can assist many employers with the implementation of a Commuter Tax Benefits program.
Accor Services
(800) 531-2828Wage Works
(866) 602-3887TransitCenter
(866) 204-5808Tranben, Ltd.
(843) 388-5525
eTRAC®
(866) 996-5200CBS Administrators, LLC
(866) 770-0404
Additional Resources:
Frequently Asked Questions About Commuter Tax Benefits (external link)
Commuter Tax Benefits Summary Table (external link)
IRS Final Rule on Section 132(f) (external link to PDF)
San Francisco Commute Benefits Ordinance (external link)
BART Rider Survey on Pre-Tax Commuter Benefits (.pdf)
PROS AND CONS OF FOUR COMMON EMPLOYER OPTIONS FOR PROVIDING COMMUTER BENEFITS
The pros and cons of four common options employers have for providing Commuter Benefits to their employees are summarized below from the employer and employee perspectives.
Paper Vouchers: Similar to cash or a money order but specifically for the purchase of transit fare media.
Employer perspective: This option is relatively easy and inexpensive for employers although the vouchers must be distributed manually which may be challenging for larger employers. Vouchers are not tied to an individual employee allowing more flexibility.
Employee perspective: Requires employees to take voucher to a redemption location to exchange for transit tickets (some inconveniences with this process noted in BART survey). Unused funds are not refunded per IRS “no change” regulation. Cannot be used with BART’s EZ Rider card.
More details on Paper Vouchers (45KB .pdf)
Benefits by Mail and Direct Load: Tickets or vouchers are ordered online directly by participants and delivered by mail or loaded to a debit card.
Employer perspective: Good solution for larger employers and/or employers with multiple worksites. Employers don’t have to distribute benefits and employees can manage their own account online. Generally more expensive than vouchers. This option is not always available or cost effective for small employers.
Employee perspective: Does not require employees to redeem vouchers. Receiving tickets by mail (rather than taking to a redemption location) was highly rated by employees on the BART survey.
More details on Benefits by Mail and Direct Load (45KB .pdf)
Debit Card: Similar to a bank debit card but loaded with funds that can only be used to purchase transit tickets.
Employer perspective: Personalized and non-personalized options available. Non-personalized is easy to administer and fees can be as low as vouchers. WageWorks card and TransitCenter’s QuickPay Card can be used with BART’s EZ Rider card.
Employee perspective: Debit cards have many of the same features as vouchers plus they can be used online and at ticket vending machines. Unused funds can be carried over. Debit cards cannot be used at locations that sell non-transit products.
More details on Debit Cards (42KB .pdf)
e-voucher: distributed like a paper voucher but with a unique verification code that allows for use online
Employer perspective: Similar to paper vouchers; easy and inexpensive for employers but still require distribution. Can only be used with TransLink at this time—does not work with BART’s EZ Rider card.
Employee perspective: Value can be placed onto smartcard from any internet-enabled computer—no visit to redemption location required. Unlike paper vouchers, residual funds can be used at a later date. Cannot be used with BART’s EZ Rider at this time.
More details about e-vouchers (42KB .pdf)
