Transportation fringe benefits are monetary subsidies that are offered by employers (public and private) and military installations to assist in paying transportation costs for those who utilize mass transit or vanpool when commuting to/from work.
The Federal tax code allows the use of tax-free dollars to pay for transit commuting and parking costs through employer-sponsored programs. Commuter tax benefits are regulated by the Internal Revenue Code, Section 132(f) — Qualified Transportation Fringe. For the 2016 taxable year, the tax code allows tax-free transportation fringe benefits of up to $255 per month per employee for transit expenses and up to $255 per month for qualified parking. Qualified parking is defined as parking at or near an employer’s worksite, or at a facility from which an employee commutes via transit, vanpool or carpool. Commuters can receive both the transit and parking benefits. In addition, bike commuters can received up to $20 per month for reasonable commuting expenses.
Companies can offer:
- A tax-free employer-paid subsidy
- A pre-tax employee-paid payroll deduction
- A combination of both of the above
Employees who set aside income on a pre-tax basis for a qualified transportation fringe benefit do not pay federal income or payroll taxes on the income set aside. For example, if you have a combined (local, state, federal) tax rate of 40% and spend $130 per month on HRT fares, you will save more than $600 per year. Qualified parking adds even more savings.
If an employer chooses instead to subsidize the benefit it is actually more valuable than an equivalent raise because of the tax advantages (for example, if a subsidy of $190 is offered, this equals roughly $317 in taxable income).
Providing pre-tax commuter tax benefits to employees can save payroll taxes for employers. The value of the benefit paid to employees is considered a tax-free transportation fringe benefit and not wage or salary compensation, therefore, payroll taxes do not apply. Employers can save roughly 7.5% in payroll taxes (including FICA, SUI, SDI and city taxes) on the amount employees set aside. If the employer chooses to offer the benefit in addition to the employee’s monthly salary, giving an employee $255 in transit benefits is less expensive for an employer than increasing the employee’s salary by $255.
The U.S. Navy, the U.S. Marines, and the U.S. Air Force have implemented a Transportation Incentive Program (TIP), and the Army has implemented the Mass Transportation Benefit Program (MTBP) to help reduce the number of commuters driving alone to military installations. The fringe benefit is in the form of issued debit cards. Debit cards may only be used at eligible transit ticket vending machines (TVMs) or customer service centers. This benefit is based on Section 132(f) of the Federal Tax Code allowing vanpool and transit costs up to $255 per month.
Transerve Debit Cards, issued through the Transportation Incentive Program, can be used at the following locations:
Debit cards can be used on Hampton Roads Transit bus, light rail and the ferry. When using debit cards at HRT’s vending machines, you must choose the pay-by-credit option. Commuter Checks are used to pay vanpool fares.