If you rely on alternative modes of transportation to get to work (transit, train, ferry, bike) and take advantage of your company’s commuter incentive program, you could realize a savings of up to $2,940* thanks to a recently amended federal tax code that was part of the Fiscal Cliff Bill passed late last year. (AKA Internal Revenue Code Section 132(f)).
First, a little history.According to commuterbenefitsworkforus.com, commuter benefits have been around for at least 25 years, joining health, retirement and disability as some of the voluntary benefits workplaces can offer. Over the years, the monthly tax-free cap commuters could spend on transit has been raised and lowered by Congress. In 2009, it was raised to $230 to equalize transit and parking, which are both covered under the commuter benefit. For tax year 2012, the monthly cap is $240. For tax year 2013, the monthly cap is $245.
The amendment Congress passed late last year allows employers to receive tax benefits for providing certain types of employee transportation benefits. The IRS calls these benefits, “Qualified Transportation Fringe Benefits” or “Commuter Tax Benefits.” Or, as the National Center for Transit Research puts it, “Employers save on payroll related taxes. Employees save on federal income taxes.”
What’s In It for Me?If you are an employee, you are eligible for this benefit as long as your employer offers it. If your employer doesn’t currently offer this benefit, consider sharing this post or contacting our Community Transit staff (their information is available at the end of this post).
If you are a Washington State employer, you are eligible for a credit against your business and occupation (B&O) or public utility tax (PUT) liability if you provide a commute trip reduction incentive to (or on behalf of) your employees. The credit is equal to 50% of the benefit cost up to $60 per employee per year.
For tax year 2012, employers have three options on how they can reduce their employees’ cost of commuting via public transportation (bus, train, ferry or registered vanpool) or qualified parking for employees:
- A tax-free employer-paid subsidy
- A pre-tax employee-paid payroll deduction, or
- A combination of the above (shared employee- employer paid)
- $245 per employee per month for vanpool, bus, ferry, rail (all public transportation)
- $245 per employee per month for qualified parking, or
- $490 per month per employee for both public transportation and qualified parking.
When the employee pays part or all of the cost of public transportation via a pre-tax payroll deduction, s/he can set aside up to $245 a month of pre-tax income. The employee saves federal withholding and FICA payroll taxes on the amount deducted. The employer saves paying FICA on the amount deducted. Employees may also share the cost with employers using after tax income.
If you are interested in learning more about how a Qualified Transportation Fringe Benefits program may work for you and your workplace, please contact Debbie Anderson or Mark Melnyk at Community Transit.
* Tax savings are for informational purposes only and are based on upon monthly pre-tax deductions of $245 for a transit benefit. $245 is the monthly cap for tax year 2013. Individual savings may vary based upon income, individual tax rates, state of residence and other factors. Please consult your tax advisor.