What Are Commuter Benefits?
Commuter Benefits, or Transportation Fringe Benefits, refers to the tax treatment that is provided to employers and employees in relation to certain commuting costs. Under Federal law (26 U.S. Code § 132), an employer may provide (or withhold) up to $300/month (2023) and increasing to $315/month in 2024 for qualified transit and vanpool expenses. Commuter may also double the value of the benefit when parking at transit facilities.
The transit portion of the commuter benefit makes sense for businesses of all shapes and sizes. The provision is a pre-tax benefit not only for employees, but also for the employers who offer it. Employers can reduce payroll taxes, providing a sound fiscal saving for the employer. This does not count savings from reduced parking needs and increased productivity.
The primary advantage to employees is that the transit benefit provides tax incentives to those who take transit or a vanpool. These savings are in addition to the hundreds of dollars a year saved from auto-related expenses like fuel, maintenance, and insurance.
The Internal Revenue Service (IRS)'s Publication 15-b offers information on the tax treatment of fringe benefits provided by employers to their employees. It describes the many kinds of fringe benefits and makes it clear which ones are and are not taxed to the employee, including information on the Qualified Transportation Fringe Benefit.
Commuter/Transit Benefit Ordinances
Many cities, regions, and states are looking to implement commuter benefit ordinances requiring businesses to simply provide employees with the ability to purchase transit passes through the use of pre-tax dollars.
Ordinances currently exist in the following locations: