Tax-Free Transit Benefits
Transportation is a concern for many employees and employers in the Metropolitan Washington region and it is also a major consideration for potential employees when deciding whether to accept a job offer. Many businesses are deciding where to locate their offices based on proximity to public transportation to make their organizations more appealing for potential employees. In a 2008 study on commercial buildings in Arlington County, 77% of companies stated that ease of commute, commute options available, and ease of customer access were all highly important factors when deciding where to locate their place of business.
Although relocating next to a metro station is ideal, we know it isn’t realistic for all organizations. You can enhance your company’s appeal to potential employees as well as reward current employees by adding tax-free transit benefits to your benefits packages.
Tax-free transit benefits allow employers to provide employees up to $245 per month ($2,940 per year) to cover the cost of commuting on public transportation and vanpools and up to $20 per month for bicycle commuters. The best part is, unlike with ordinary wage payments, employers do not have to pay their share of federal payroll taxes on tax-free transit benefits, and the cost of providing the benefit can be deducted as a normal business expense.
Tax-free transit benefits can be implemented through Washington Metropolitan Area Transit Authority.
There are three options for offering tax-free transit benefits to your employees:
- Employer contribution
- Pre-tax deduction from the employee's paycheck
- Combination of pre-tax deduction and direct benefit (employer contribution)
Employer contribution is the most favorable to your employees, but if that's not an option for your company, a pre-tax payroll deduction is still beneficial to both you and your employees. You will actually save over $400 per year in payroll taxes per participating employee, and your employees will save 15– 42% of their monthly commuting costs, depending upon their individual tax brackets.
NOTE: An additional transit benefit that employers can provide to their employees is the cash transit benefit. Instead of providing a tax-free transit benefit through the SmartBenefits system or CommuterDirect.com Corporate Services, the employer simply gives the employee cash. This is not a tax-free transit benefit (the cash is considered taxable income) but can be combined with tax-free transit benefits.
What are the benefits of tax-free transit benefits?
Offering $245 in tax-free transit benefits each month lets your employees know that you want them to have easier, cheaper, and less-stressful commutes to work. It also helps make your business more competitive in recruiting and retaining employees.
How Arlington Transportation Partners (ATP) can help:
ATP makes it easy and convenient for you to establish and administer a program that meets the IRS requirements for tax-free transportation benefits. ATP offers complimentary assistance to assess your needs and help you set up the tax-free transit benefit program that is right for you and your organization. ATP makes it simple by providing the following services:
- Determine the need for tax-free transit benefits
- Determine the number of possible participants
- Survey employees to determine commuting patterns, costs, and interest in alternative means of commuting
- Identify the benefits to employers and employees
- Assist in choosing the best program option to fit your needs
- Analyze worksite locations in relation to employees' homes, transit, and HOV facilities
- Examine parking, access, congestion, and other needs
- Develop and implement commuter benefits
- Assist with open enrollment
- Provide samples of promotional emails, enrollment forms, and the IRS tax code
- Setup administrative processes
- Provide staff orientation
- Plan and execute pre-launch promotion for employees (with information on transportation services available and benefits of the program)
- Plan and execute kickoff event/announcement
- Sponsor a workshop or seminar to explain tax-free transit benefits
- Provide other promotional assistance, such as posters, flyers, newsletter articles, brochures, intranet information, etc.
- Notify you on any changes or increases in tax law
- Follow up to ensure success
How can I encourage employee participation?
There are numerous ways to get the word out and encourage employee participation in a tax-free transit benefit program:
- Send out e-mail notifications and reminders
- Display posters and flyers in high-traffic areas of your office
- Include information packets with paychecks
- Include an article in your company newsletter
- Provide information on your company's intranet
- Include information in your new-hire packets