Commuter Benefits - info for employers

What are commuter benefits?

Commuter benefits are authorized under Section 132(f) of the Internal Revenue Code.

Currently, employers can provide a transit fare subsidy or allow employees to direct earnings towards transit expenses as pre-tax payroll deduction. The pre-tax option was authorized in 1998 and has proven to be extremely popular.

To take advantage of tax-free transit "fringe benefits," as they are called, and employer can purchase transit passes directly from a transit operator and disperse them to employees, or they can choose to provide "Commuter Checks" which an employee can then use to purchase transit passes or tickets directly from the operator.

Regulations require record-keeping for the use of cash reimbursement. These are detailed in the IRS's Employer's Tax Guide to Fringe Benfits. The tax preparation consultant H&R Block has more links and information for employeers and employees.

See also: Information for commuters / employees

For employers

Which businesses can participate?

Are any employers too large or too small to take advantage of commuter benefits?
All employers, from single person offices to those with multiple locations, and from every industry category in the private, public and non-profit sectors can participate in the program.

What about self-employed people?
The IRS defines self-employed persons as individuals who are partners, sole proprietors, S-Corp. employees with 2% or more ownership, and independent contractors. They are excluded from Section 132(f). However, they are included under earlier "de minimis fringe" regulations and are entitled to a $21 per month ($252 a year) maximum tax-free transit benefit. See Question 24 in the Q & A of the regulations noted above for further detail.

What are the benfits?

Federal legislation authorizing transit checks now allows commuter benefits to be provided in place of existing salary. Provided as either a supplemental benefit or pre-tax salary reduction, up to $110 a month ($1320 a year) can be given tax-free to each employee.

As a supplemental benefit, tax-free commuter benefits offer big savings to employers and employees. Employees save income tax and FICA. Employers also save FICA plus disability, unemployment, workmen's compensation and other payroll-linked costs.

As a pre-tax salary deduction, commuter benefits costs employers nothing to provide – it actually provides a savings! For example, if an employee's gross salary is reduced by $35 a month to fund purchases of $35 Commuter Checks, the employee's take-home pay is reduced by only $21; $14 in taxes is saved. Employers also pay less payroll tax.

As a new benefit, it's like a tax-free raise. For example, to give the same after-tax value as a $35 monthly commuter benefit, a taxable raise of over $55 is needed. This can actually cost the employer $60 to provide when all payroll taxes are included.

How to purchase transit services and offer benfits

How to purchase transit passes directly from HTA

You can puchases passes and ticket books directly from the HTA office at 133 V St in Eureka using cash, check, Visa, or Mastercard. For more information, you can call HTA at (707) 443-0826.

Commuter checks

Commuter checks are vouchers that can be redeemed for transit passes and tickets by employees. They are programs administered by commuter check companies. Their advantage is that commuter checks often remain valid for longer periods than the transit passes they can be redeemed for. The commuter check programs also help your company keep fringe benefit records for tax reporting purposes.

To start a Commuter Check program at your company, follow these easy steps:

  1. Some of the most popular commuter check issuers are commutercheck.com and commutercheckdirect.com. Visit their websites to get more information about their commuter check programs and sign-up.
  2. Your company will work with the commuter check to figure out the best way to get employees their commuter checks.
  3. Your employees may take their Commuter Checks the HTA office at 133 V St in Eureka and redeem them toward the purchase of a monthly bus pass or ten-ride ticket book.

See also: Information for commuters / employees