Commuter Benefit Programs
State and Federal tax laws allow employees of the employer to save taxes on parking at work and transit or vanpooling expenses incurred to get to work. Employees save by setting up a pretax payroll deduction that reduces taxable income. Qualified expenses are exempt from Federal, State and FICA (Social Security and Medicare) taxes. Participant tax savings will vary, depending on their deduction amount and tax bracket. Most employees will save approximately $13.50 on every $50 they pay for qualified expenses (27%).
What is the Pre-Tax Commuter Benefit Program?
The Pretax Commuter Benefit Program is a qualified transportation benefit program authorized by Internal Revenue Code (IRC) § 132.
What types of expenses qualify under the Commuter Benefit Program?
Your employer’s Commuter Benefit Program plan may allow all or only some of the following:
- Parking at or near your work location or at or near a location from which you commute to work by car pool, commuter highway vehicle or mass transit. Out-of-pocket parking fees for parking meters, garages and lots qualify. Parking at or near your home is not an eligible expense.
- Van-pooling in a commuter highway vehicle with a seating capacity of at least 7 adults, including the driver. At least 80 percent of the vehicle mileage must be for transporting employees between their homes and workplace with employees occupying at least one-half of the vehicle’s seats (not including the driver’s seat). Not all employees must work for the employer sponsoring the Commuter Benefit Program.
- Transit passes, tokens, fare cards, vouchers, or similar items entitling you to ride a mass transit vehicle to or from work. The mass transit vehicle may be publicly or privately operated and includes bus, rail, or ferry.
Limits on Monthly Pre-Tax Deductions and Expenses:
Annual limits are set by the IRS.
The following limits are in affect for the 2011 calendar year:
- Parking deduction is limited to $230/month for 2011.
- Transit passes & vanpooling, whether separately or combined, deduction is limited to $120/month for January and February, 2011, and $230/month for the remainder of 2011.
- Any monthly costs above these limits cannot be exempt from taxes and cannot be carried over to future months.
How does the plan work?
- The Plan works just like any other flexible spending account. Participants authorize their employer to deduct a pre-tax amount for parking or van-pooling/transit from each paycheck, up to the IRS limits stated above. The participant pays for the qualified transportation & then files a claim to recover the amount deducted from their paycheck. The savings to the participant comes from the tax savings on the funds set aside for commuter expenses.