Aside from helping your employees, offering commuter benefits can have economical merits for your company. Tax incentives granted by federal and state governments make it easier than ever for businesses to seek transportation-related perks.
Federal Qualified Transportation Fringe Benefit
The commuter tax benefit, formally known as the Qualified Transportation Fringe Benefit program (governed under Section 132 [f] of the IRS Code), provides a tax incentive to employees who travel using specific modes (vanpool and public transit) that also benefits employers. The benefit program also involves parking and bicycling costs. (Refer to IRS Guidance and your company tax advisor for in-depth information).
The value of any commuter benefits granted by an employer to employees is excused from withholding and employment taxes and is not reported as a taxable amount on the employees’ W-2 form. The value of these benefits is also deductible as an employer-provided benefit from the employer’s gross profit.
Steps to Offer the Commuter Tax Benefit.
The Commuter Tax Benefit applies only to work-related trips taken on a federally defined commuter vehicle, featuring bus, rail, subway, ferry, subscription bus, or shuttle. Included is a vanpool that has seating capacity of at least 6 adults plus the driver and has at least 80 percent of its mileage used for commuting.
Employers can design their commuter benefit program in one of three ways:
– Benefits in addition to salary: Employers can provide each employee with a transit pass, vanpool voucher, or similar item entitling them to transportation on a transit vehicle or a vanpool. In minimal cases, they can give cash reimbursement for these sorts of.
Latest information on the commuter tax benefit is available at the National Center for Transit Research. Commute when no pass, voucher, or similar item is available and when use is absolutely substantiated. Your business can deduct commuting subsidies as a normal business expense; that value of the subsidy is nontaxable to the employee.
– Employee pre-tax set-aside: Employers may set aside an employee’s pre-tax income amount used for qualified commuting expenses before calculating payroll taxes. Employers also pay employment taxes only on the minimized amount of the employee’s salary.
– Mixture of reimbursed conveniences and pre-tax set-aside: Employers can decide to pay part of an employee’s commuting costs, deducting that amount as an employee benefit, and then afterwards deduct the remaining cost up to $245 per month per employee from an employee’s salary before calculating taxes.
Qualified Parking Benefit.
Employers can also choose to help cover employees’ cost of parking at a lot where they commute to work by a vanpool, carpool or public transit in one of three ways:
– Spending for their parking directly.
– Taking off the cost of the parking pre-tax from the employees’ salary.
– A combination of both, up to a maximum of $245 per month per employee in 2013.
Employers who provide parking on or near the business work areas can deduct the cost of that parking.
Qualified Bicycle Benefit.
As of January 2012, employers may also give reimbursements of up to $240 per year ($20 a month) for practical expenses incurred by an employee for the purchase, maintenance, and storage of a bicycle used to commute to work. Reimbursement for bicycle commuting is not available for employees who already accept a parking or transit subsidy. Unlike the other qualified transportation fringe benefits, a qualified bicycle commuting reimbursement benefit cannot be financed through employee pre-tax income.
State Tax Incentives.
Maryland and Minnesota allow businesses to claim a tax credit for amounts they spend toward employee commuting costs. In Maryland, businesses can claim a tax credit for 50 percent of the suitable costs of providing eligible commuter benefits up to a maximum of $50 per employee per month. In Minnesota, employers that purchase transit passes to resell or give to their employees may be eligible for a 30 percent state tax credit.
Prior to executing any sort of commuter benefit program, talk with your tax advisor.