What are Commuter Benefits?
Commuter benefits are a simple way for both employers and employees to save money. Put in place to encourage the use of public transportation, these programs allow for employers and employees to use pre-tax dollars to pay for a variety of commuting expenses.
How can companies help?
Commuter benefits encourage your employees to ditch the tiring task of driving to and from work every day while providing them with flexible ways to save money through pre-tax dollars. And these pre-tax benefits help your business reduce its payroll tax burden.
What do commuter benefits cover?
Mass transit: Commuter benefits can be used for expenses incurred for a pass, fare card, voucher, or similar item for transportation on mass transit. Mass transit examples include trains, buses, and subway.
Parking: Eligible parking expenses include amounts paid for parking of your vehicle at or near work or at a location used to commute to work (such as a park-and-ride facility).
Vanpooling: Funds can be used for expenses incurred in a commuter highway vehicle, which is defined as any vehicle that seats at least six adults, not including the driver. At least 80 percent of the mileage in the car must be used to transport employees to and from work, and the number of employees is, on average, at least half of the adult seating capacity of the vehicle. Lyft Shared and uberPOOL comply with IRS vanpooling regulations.
What isn’t included?
Commuter benefits cannot be used to pay for tolls, taxis, gasoline, mileage, business trip costs, airport parking fees, or residential parking fees.
How do workers benefit from commuter benefits?
Healthier results: Your employees’ wellness affects their health—and your bottom line. A recent study found that unhealthy workers cost companies $1.1 trillion in lost productivity annually.11 And providing healthcare for obese employees costs $12.7 billion due to increased costs in healthcare, sick leave, disability, and life insurance.
Decreased stress: Employee stress can lead to long-term health issues, including heart disease, obesity, diabetes, and depression. And stress can have more immediate and damaging effects on a business, leading to missed deadlines, employee turnover, and damage to your company’s image. Unfortunately, the drive to and from work can be a significant stress trigger. Giving employees with pre-tax incentives to take mass transit or van pooling can help reduce stress, which increases the productivity and effectiveness of your business. And the financial incentive and tax savings that come with commuter benefits also alleviate another important stress trigger, since nearly half of workers say financial stress has caused them to miss work or has reduced their productivity.
Less time driving: There’s never enough time in the workday. The average American works somewhere between 44 hours and 47 hours every week. One-third of employees work more than 50 hours per week, and that doesn’t include the time spent driving to and from work. These time commitments are threatening employees’ abilities to maintain a healthy work-life balance and can lead to employee burnout.
Encouraging employees to take mass transit or van pooling helps them avoid the adverse effects driving can have on their brain and mental well being. When they’re riding instead of driving, they can also spend time on other things, whether it’s catching up on personal emails, listening to a meditation, or starting their day with a favorite podcast or music. This may put them in a better state of mind entering and leaving work.
Fringe Benefits Chart and Changes for 2020
|Qualified Transportation Fringe Benefits|
|Category||Transit||Commuter Highway Vehicle (e.g., vanpool)||Qualified Parking||Qualified Bicycle Commuting Reimbursement|
|Incentive Levels||Up to $270/month* for transit expenses||Up to $270/month* for commute trip in a vehicle with a seating capacity of at least six adults (excluding the driver), with at least 80 percent of the vehicle’s mileage for a year is reasonably expected to be for commuting and on trips during which the number of employees transported for commuting is at least one-half of the seating capacity of the vehicle (excluding the driver)||Up to $270/month** for parking at or near an employer’s worksite, or at a facility from which employee commutes via transit, vanpool, or carpool||Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.|
|Employer||Employers may give their employees up to $270/month for transit vouchers, commuter highway vehicle fares and/or commuter parking fees.||Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.|
|Change in 2019: Private sector employers are no longer able to deduct the tax-free qualified transportation fringe benefit payments to employees as a business expense. Only if an employer treats the qualified transportation fringe benefits as taxable W-2 wages to the employee, then an employer can deduct the expenses of providing those benefits.|
|Employers may allow employees to use up to $270 per month in pre-tax income to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.|
|Employers may reduce their payroll tax contribution of the pre-tax income used by employees to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.|
|Employee||Most employees may receive up to $270/month for purchase of transit vouchers, commuter highway vehicle fares and/or parking fees from his or her employer. This subsidy value will not appear on their W-2 form as income.||Qualified Bicycle Commuting Benefit remains ineligible as a tax free benefit.|
|Employee pays for commute benefit with the pre-tax income up to the $270/month statutory limit and receives more after-tax spendable income.|
|Employee may combine the pre-tax benefit with employer subsidies up to $270/month for each to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.|
|* tax free transit and vanpool benefit limit increased from $265 per month in 2019. It was raised to $270 per month for beginning January 1, 2020.|
|** tax free parking benefit limit increases from $265 per month in 2019 to $270 per month beginning January 1, 2020|