Commuter benefits – The City of Seattle has passed a Commuter Benefits Ordinance, which becomes effective on January 1, 2020. Businesses with 20 or more employees will be required to offer their employees the opportunity to make a monthly pre-tax payroll deduction for transit or vanpool expenses. This employer-provided method for employees to pay bus fare, parking and other transit expenses using pre-tax dollars provides multiple advantages: employees save money on taxes, employers save on payroll taxes and have an additional perk for employees, as well as environmental benefits.
How do commuter benefits work?
Broadly speaking, commuter benefits allow employees to pay for many transit expenses with pre-tax dollars, saving up to 40% on those expenses.
Typically, those expenses include:
Public transit to and from work
Vanpools or other qualified, privately owned transportation services
Parking near your office or at a location from which you commute (like a train, or Park & Rides)
Commuter benefits usually don’t cover:
Costs related to driving your own car
Parking at places in route – to and from work.
Reimbursable travel costs paid by the employer
Employers will be required to offer and administer commuter benefits under this ordinance. Employees decide how much money they want to contribute every month, that amount is then deducted from their paychecks into a commuter benefit account. The employer can choose between administering the commuter benefit account internally or outsourcing to a HR benefit provider.
Currently, pre-tax transit spending is capped at $265 per employee per month for busses, light rail, ferry, water taxi, and Vanpool. Qualified Parking Benefits Parking provided to employees on or near the worksite, or a location from which employees take a commuter highway vehicle, mass transit or vanpool also qualify for an additional $265 benefit. When combining parking and transit benefits, employees can receive a total tax-free benefit of $530 per month in 2019.
Commuter benefits are a way for employees to save money on public transit and parking, with minimal cost to the employer.
What are the tax implications?
The Tax Cuts and Jobs Act states that no deduction is allowed for qualified transportation benefits incurred or paid after 2017. Also, no deduction is allowed for any expense incurred for providing any transportation, or any payment or reimbursement to employees, in connection with travel between the employee's residence and place of employment. While employers may no longer deduct payments for qualified transportation benefits, the fringe benefit exclusion rules still apply and the payments may be excluded from employee's wages up to the limits specified above.
The Commuter Benefits Ordinance offers tax advantages to both employer and employees. They are considered tax-free transportation fringe benefits, and aren’t subject to employer payroll or employee income taxes. Let’s say the employer pays around 8% in payroll taxes and employees pay around 25% in income taxes. $3180 in commuter benefits (12 months of the monthly maximum for public transit) amounts to $3180 in the employees’ wallet, since it’s pre-tax. That same amount in the form of a bonus would cost the employer $254 and it would cost the employee $795, lowering the net amount to $2385. From both perspectives, commuter benefits save tax dollars.
What are the costs of a commuter program?
Typically, commuter benefits programs are free for employees but often carry a small charge for employers if they’re administered by a third party. Depending on company size and benefits provider, that charge may vary, but you may be able to find a program for as low as $5 per employee. The benefits can also be administered internally by employers. At Seattle Controller LLC, we can help you make the best decision for your company.