The cost of commuting by mass transit and ridesharing can be significant but there are several effective strategies that can help lower the cost of getting to work for employees. Most of these strategies are of low or no cost to the employer and greatly benefit the employee. Additionally, employers may be able to take advantage of transit-related tax benefits.
Some employers make the conscious decision to supply a commute-related benefit to their employees. They will opt to pay for all or some of the costs that employees incur in buying transit tickets, paying for parking or paying for their share of being in a vanpool. The value of this support is not reportable income for employees, so long as they have receipts that show the money was spent on a qualifying transit related expense.
An employer may want to consider this option for many reasons, such as avoiding the need to construct additional parking, retention of key employees, to minimize relocation costs for employees and more. An employer may deduct some or all of the costs of their employee commute subsidy from their corporate taxes.
Employers can make it possible for their employees to purchase their transit tickets, pay parking fees and/or vanpool costs with pre-tax dollars. This simple and cost effective strategy will lower the employees’ commute costs by the same amount as their tax liability. To make this benefit available, the employer must allow employees to pay for their transit through payroll deduction. Visit our Pre-tax Incentives page to learn more about the potential savings.
Employers that allow employees to pay for transit related costs will also benefit. The employer will not have to pay FICA or FUTA taxes, approximately 7.65%, on all pre-tax dollars that all employees spend on transit. The more employees that use this benefit, the more their employer can save.