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Give a Hoot, Support The Commute (Part 1)

Get in the figurative HOV lane and show your employees and community that you give a hoot by looking into a healthier commute.

Many employers are considering commuter policies because they are environmentally friendly and provide attractive tax benefits for both employers, who reduce payroll taxes, and employees, who lower their taxable pay.

Transportation fringe benefits encourage workers to commute to and from work in ways that reduce global greenhouse gases and minimize the hassle factor. Clean commute incentives also give employers an appealing way to enhance their benefits package to attract and retain qualified employees, particularly in urban areas with traffic congestion and air quality issues.

Federal tax breaks---a “win-win”

Internal Revenue Code Section 132 excludes from an employee’s gross income the value of certain fringe benefits provided by employers, such as qualified transportation subsidies. These fringe benefits include mass transit passes, transportation in a commuter highway vehicle between an employee’s home and work (i.e., vanpools) and parking.

Beginning in 2014, the monthly aggregate cap for vanpooling and any transit tokens, vouchers and fare cards is $130. The maximum monthly fringe benefit exclusion amount for qualified parking at or near a place of employment or in a park-and-ride lot is $250. Commuters can receive both the transit and parking subsidies, up to $380 per month. The exact tax savings depend on the way in which the benefits are provided to employees—whether employee-paid through pre-tax salary deductions, employer-paid or a combination of both. (see chart below)

In addition, employees who bike to work can also be reimbursed up to $20 per month. Unlike other transportation fringe benefits, bike commuters cannot use pretax dollars to pay for bicycle expenses.  Moreover, an employee cannot receive the bicycle commuter reimbursement for any month in which he or she receives an incentive for vanpooling, a transit pass or qualified parking benefits.

Employers should remember that federal commuter benefits apply only to employees.  Thus, independent contractors, partners and two percent or more shareholders in S-corporations do not qualify.

2014 Federal Commuter Benefits

Transit Commuter Highway Vehicle (e.g, vanpool) Qualified Parking Qualified bicycle commuting reimbursement
Incentive Levels Up to $130/month*** for transit expenses Up to $130/month*** for vanpool expenses Up to $250/month**** for parking at or near an employer’s worksite, or at a facility from which employee commutes via transit, vanpool, or carpool Up to $20 per qualified bicycle commuting month. This exclusion for qualified bicycle commuting reimbursement includes any employer reimbursement during the 15-month period beginning with the first day of the calendar year for reasonable expenses incurred by the employee during the calendar year.
Employer Tax Benefit Employers give their employees up to $130/month*** to commute via transit; gets a tax deduction and saves over providing same value in gross income or Employers allow employees to use pre-tax income to pay for transit and employers save on payroll tax (at least 7.65% savings) or A combination of both up to statutory limits Employers give their employees up to $130/month*** to commute via vanpool; gets a tax deduction and saves over providing same value in gross income or Employers allow employees to use pre-tax income to pay for vanpooling and employers save on payroll tax (at least 7.65% savings) or A combination of both up to statutory limits Employers give their employees up to $250/month**** for qualified parking; gets a tax deduction and saves over providing same value in gross income or Employers allow employees to use pre-tax income to pay for qualified parking and employers save on payroll tax (at least 7.65% savings) or a combination of both up to statutory limits Employers reimburse their employees up to $20/month for qualified bicycle commuting; gets a tax deduction and saves over providing same value in gross income According to the IRS, “Generally, you can exclude qualified transportation fringe benefits from an employee’s wages even if you provide them in place of pay. However, qualified bicycle commuting reimbursements do not qualify for this exclusion.”
Employee Tax Benefit Employee receives up to $130/month*** tax free for transit or vanpool (this value will not appear on their W-2 form) or Employee pays for commute benefit with the pre-tax income and saves on income tax or A combination of both Employee receives up to $130/month*** tax free (not on their W-2 form) or Employee pays for commute benefit with the pre-tax income and saves on income tax or A combination of both Employee receives up to $250/month**** tax free (not on their W-2 form) for qualified parking or Employee pays for commute benefit with the pre-tax income and saves on income tax or A combination of both Employee reimbursed up to $20/month for reasonable expenses related to commuting by bicycle

 *** tax free transit and vanpool benefit limit decreased from $245 per month in 2013 to $130 per month beginning January 1, 2014

**** tax free parking benefit limit increased from $245 in 2013 to $250 per month beginning January 1, 2014

Chart copied directly from http://www.nctr.usf.edu/programs/clearinghouse/commutebenefits/)

 

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