All about the employees’ commuter benefits program
(Full-time) employees participating in the commuter benefits program can use pre-tax money to pay for their mass transit passes, for example. Companies that offer commuter benefits also end up saving funds because they have to pay less in payroll taxes. Commuter benefits generally help attract and retain employees, as many workers simply prefer employers who cover transportation and parking costs.
While some employers in certain cities are required to offer a commuter benefits program and a commuter benefits account to their employees, many simply offer this service because the company itself can also benefit from these advantages!
What are commuter benefits?
Commuter benefits (also known as transportation benefits or transit benefits) give employees the opportunity to use tax-free money for commuting expenses through their employer while keeping more of their monthly income.
These types of benefits can make up for a frustrating commute, for example. They can also be a consolation benefit if remote work is not an option. Many commuter benefits can be offered on a pre-tax basis, so they can reduce the tax burden for both employees and employers.
In addition, using public transportation can lead to less traffic congestion and pollution, which benefits everyone.
✅ Commuting tax savings means more money in your pocket: Commuter benefits allow you to pay for your commute to and from your workplace with pre-tax dollars, which will save money on your taxes each year.
How can you use pre-tax commuter benefits?
Some types of benefits may be offered on a pre-tax basis (pretax commuter benefits). This means that the cost or reimbursement is not considered taxable income. The following are the types of commuter benefits that can be offered on a before-tax basis under Internal Revenue Service (IRS) regulations (the current tax limit is $280 / month):
- Tickets for local transportation such as buses, ferries, trains, or streetcars
- Parking benefits: Reimbursed parking fees or employer-paid parking for employees
- Carpooling services
What are after-tax commuter benefits?
There are also after-tax benefits. While these options do not have the same benefits as pre-tax, they are still useful for employers. Below are some examples of how businesses can best take advantage of these benefits:
- Allow employees to work remotely part or all of the time, which eliminates commuting costs altogether
- Provide company cars if needed
- Distribute cab vouchers or arrange ride-sharing
- Give employees gas cards or discount programs for fuel
- Offer reimbursement for bicycle maintenance when used for work
✅ Note: For all of these expenses to be counted, they must be incurred primarily for work.
How do commuter benefits work?
✅ Transit subsidies allow employers to help their employees commute. Common benefits include discounts on parking and transportation, as well as carpooling and biking perks.
Does your employer offer commuter benefits like parking benefits? If an employee signs up for a commuter program, they can pay for their commute on eligible transit with before-tax earnings. Because of the different types of commuting, there are several ways (full-time) employees can receive their perks. For example, via:
- Smart cards
- Fare cards
- Direct payments for transit expenses
- Cash reimbursement for parking expenses
Which commutes are covered?
Eligible commuting costs that may be covered include parking fees or public transit expenses, for example:
1. Transit passes for mass transportation
Eligible transit – the mass transit can be publicly or privately operated and includes:
- Water cab
- Light rail
2. Parking costs
You can be reimbursed for qualified parking expenses at or near your workplace:
- Cost of parking at qualified parking spots in the city
- Parking fees for parking meters
- Monthly expenses for garages and parking spaces charged by the parking provider
There is also a commuter benefit for carpooling and your employer may pay for transit in this case:
- Carpooling services (e.g., UberPool and Lyft Shared)
ℹ️ Using commuter perks for Uber & Co: First, open the respective app. Then select Commuter Benefits as the payment method and add your card details.
- Van-pooling (this requires a commuter highway vehicle that has a seating capacity for at least 7 adults, including the driver)
4. Perks for bicyclists
Not only are transit and parking covered, under the Bicycle Benefit, (full-time) employees can spend up to $20 per month on equipment and repairs!
What is the commuter benefits law?
Many cities and regions have mandatory commuter benefit ordinances. These regulations require companies with a minimum number of employees (who may be required to work full-time) to offer pre-tax benefit programs. This currently affects commuters in: Berkeley and Richmond, CA; Seattle; New York City; New Jersey; San Francisco Bay Area; Los Angeles; Washington, D.C.
How does a commuter benefits account work?
A commuter benefit account is an employer-sponsored benefit program that allows employees to set aside pre-tax funds in a separate account to pay for qualified mass transit and parking expenses related to their commute to work. Contributions to a commuter benefit account are deducted pre-tax from your paycheck, reducing your taxable income.
How can I contribute to my commuter benefits account?
First, check with your employer for the maximum amounts you can contribute. Currently, transportation and carpool contributions are limited to $280 per month. Contributions for parking are also limited to $280 per month. Any monthly expenses above these maximums are not tax deductible and cannot be carried over to future months.
How do I access my commuter benefits account?
You authorize your employer to deduct a pre-tax amount for parking expenses, carpooling or transit. Then you pay for qualified trips with your debit card or out of pocket and then submit a claim for reimbursement.
Conclusion: Are commuter benefits worth it?
Almost any employee and also their employers can benefit from the program. On average, workers save 30 % or more when they choose to set aside money in a pre-tax benefit account. That’s about $700 per year in employee savings if they set aside up to $280 per month for commuter expenses. Workers with higher commuting expenses (for example in New York City) can save as much as $918 annually on mass transit and parking. Commuter perks are definitely not annual “use it or lose it” plans, and the funds in the account are available for as long as the employee is employed by the company!