Commuter Tax Benefits

A win-win for employers and employees

Do your employees take the bus, train, or vanpool to work? If so, they could be saving up to 40% on their commuting expenses. The federal government allows employees to deduct up to $125 per month from their paycheck, pre-tax, to pay for transit or vanpool expenses.

Employees save by using pre-tax dollars for their commuting expenses and employers get the advantage of reduced payroll taxes. This popular program is relatively easy to add to an employee benefits package and inexpensive to administer.  In addition to a payroll deduction, employers can provide a subsidy and receive benefits or even offer a combination of the two.

The benefit works like other pre-tax plans such as dependent care and medical reimbursement, except that it’s much simpler. It is exempt from the usual restrictions and reporting requirements that accompany other pre-tax programs allowed by the IRS. There are no plan filings or forms for the employer to fill out, no irrevocable elections and no mandatory enrollment dates.

Sample Savings
(Based on an employee spending $115 per month on transit.)

Tax Category*    Annual
Employee
Savings
  Annual
Employer
Savings
 FICA and Medicare:   $101   $101
 Federal Income Tax :   $370    
 Total:   $471   $101


* Savings calculations are based on average tax percentages of 7.65% FICA and Medicare, 28% Federal Income Tax. Actual tax savings depend on the individual’s and employer’s tax rates.