The Commuter Tax Benefit enables employees to reduce their taxable income and pay for commuting expenses with pre-tax dollars, up to $240 a month. Depending upon the tax bracket, that is a potential savings of up to 38%. And employers could deduct over 7% in payroll taxes for each participating employee.
There are many tax benefits available when you help your employees use public transportation. Taking advantage of these benefits is easy, and programs can be set up at any time.
Cost savings for employees and employers
Improved recruitment and retention
Less stressed employees
Offset rising transit costs and fare increases for employees
Improved air quality
How Commuter Tax Benefits work
Federal tax law allows employees to use pre-tax dollars to pay for transit commuting and parking costs through employer sponsored programs. Employees may set aside a portion of their salaries before taxes to pay for transit and van-pool fares. Employers may:
Allow employees to pay for transit, van-pool or parking fares with pre-tax salary
Pay for employees’ transit, van-pool or parking
Use a combination of these two methods
Sign Up for Payroll Deductions
Employees sign up for payroll deductions that are used to pay transit costs with pre-tax dollars and save, regardless of income bracket or choice of transit services. Employees can receive their benefits as a pre-tax payroll deduction from their paycheck.
No Federal Income or Payroll Taxes
Employees who set aside income on a pre-tax basis for a qualified transportation fringe benefit do not pay federal income or payroll taxes on the income set aside. For example, if you have a combined (local, state, federal) tax rate of 27.65% and spend $121 per month on the Rail Runner, you will save $33.46 each month or just over $401 a year*.
With a Commuter Tax Benefit Program you’ll improve your bottom line while offering a great morale booster to your employees. It’s like raising take-home pay.
Reduce Taxable Income
When employees use their pre-tax dollars to pay for their commute, they reduce their taxable income. That leaves less taxable payroll, which saves your company roughly 7% on the amount employees set aside. If employers choose to offer the benefit in addition to salary, giving an employee $121 in transit benefits is thus less expensive for an employer than raising the employee’s salary by $121*. And you’ll be contributing to the quality of life in the region by promoting the use of alternative transportation.
*Examples based on NM resident in 15% federal tax bracket, state tax rate of 5% and FICA rate of 7.65% with a contribution of $121 per month by an employee earning income of less than $34,000. Does not include fee charged by benefit provider.