Transit Commuter Benefits
In 1998, Congress approved legislation that allows employees of corporations to pay for
parking and transit (including vanpool) with pre-tax dollars while employers enjoy lower overall payroll taxes. These benefits are found in Internal Revenue Code (IRC) Section 132(f) Commuter Choice Benefits. These tax incentive benefits include:
Employer-paid Benefits: Employers can pay for their employees to commute by transit or vanpool, up to the cap set annually by Congress.. With this arrangement, federal exempts up to the monthly cap in transit benefit from federal income and payroll taxes, and generally state and local taxes as well. The employer in this case effectively provides his or her employees with a tax-free transportation bonus. Employers can also share the cost of commuting with their employees by paying for part of the transit commuter benefit, and allowing employees to pay for the remainder using pre-tax dollars.
Employee-paid Benefits: Employers can allow employees to elect to exchange up to the monthly cap set by Congress in taxable salary for tax-free transit or vanpool benefits This is done by deducting the cost of the transit commuter benefits received by an employee from the employee's paycheck. Such pre-tax deductions from an employee's pay are comparable to those often used to pay for medical benefits, or retirement benefits under a 401(k) plan. Employers save money overall since the amount exchanged is not subject to payroll taxes. Employees also save money since the amount of an employee's salary exchanged for transportation benefits is not subject to federal income tax and payroll taxes.
For more information on pre-tax commuter benefits for employers or employees, visit the RTA's Transit Benefit Program page at www.mytransitbenefit.com.