Federal Tax Benefits are available through use of employer-offered IRS Section 132(f) Qualified Transportation Benefits. These benefits provide a tax benefit to employers, and employees save too! Employers can offer them in one of the following ways:
- Employer-Paid Transportation Benefits. Employers can pay for their employees to commute by transit or vanpool, up to a limit of $255/month. With this arrangement, employees get up to $255 in a tax-free transportation benefit. Employers get a tax deduction for the expense and enjoy savings on payroll-related taxes.
- Employee-Paid, Pre-Tax Transportation Benefits. Employers can allow employees to set aside up to $255/month of pre-tax income to pay for transit or vanpooling. Employers save money overall since the amount set aside is not subject to payroll taxes. Employees save money, too, since the amount of an employee’s salary set aside for transportation benefits is not subject to income tax, up to the specified monthly limits.
- Shared-Cost Transportation Benefits. Employers can share the cost of transit or vanpool costs with employees and everyone can receive valuable tax savings. With this approach, employers can provide a portion of the cost of taking transit or vanpooling as a tax-free benefit and allow the employee to set aside pre-tax income to pay for the remaining amount of the benefit (up to the specified limits).
- Parking Cash-Out. Employers can offer their employees the option to “cash out” of their existing parking space. For example, if Company A subsidizes parking for their employees at $60/month, a parking cash-out program would allow employees to choose from the following options: (1) keep the parking space worth $60/month, (2) give up the parking space and receive $60 extra each month in taxable salary, or (3) receive $60/month in tax-free transportation benefits to pay for transit or vanpooling. Cash-out programs often work best for employers that pay separately for parking and for organizations with parking shortages or plans to expand parking facilities.
For an in-depth review of Federal Transportation Benefits check the out the Transportation (Commuting) Benefits section of this publication from the IRS.