Tax Benefits for Employer Based Transportation Programs
Tax benefits are available to help offset costs incurred by employers for commute benefits programs. Pre-tax accounts can save employees money on commute and parking expenses, at little or no cost to the employer.
Washington State Tax Benefits
If your company is providing commute trip reduction incentives, it may be eligible to receive Washington’s Commute Trip Reduction Tax Credit. Eligible companies and property managers- those paying the business and occupation (B & O) or public utilities (PUT) taxes- can receive a 50 percent tax credit on the amount paid to or on behalf of each employee for transit, ridesharing, carsharing or non-motorized commuting. Up to $200,000 is available for individual companies and property managers per fiscal year, with a cap of $60 per employee. More information is available on the Washington State Department of Revenue’s webpage.
Federal Tax Benefits
Per Federal law, employers have two ways to offer their employees a commute benefit free of payroll taxes to significantly reduce an employee\'s cost of using public transportation (bus, train, ferry or registered vanpool):
- Companies can offer employees a tax-free employer-paid subsidy
- Pre-tax payroll deduction
- Or a combination of both
This law applies when the employer, or qualified third party, delivers the commute benefit to the employee in the form of a pass, ticket book or voucher.
If the Employer Pays. . .
If the employer pays for a portion or all of the public transportation fare and delivers the benefit directly to the employee in the form of a pass, ticket book or voucher, the following breaks are available:
- The employee receives the tax-free benefit of the employer-subsidized pass, ticket book or voucher up to $230* a month.
- The employer has a tax deductible business expense for federal taxes.
If the Employee Pays . . .
If your employee pays for a portion or all of the cost of public transportation, and buys or receives the pass, ticket book or voucher through the employer, the following breaks are available:
- The employer can allow the employee to pay via a pre-tax payroll deduction, up to $230* a month.
- The employee saves federal withholding and FICA payroll taxes on the amount deducted.
- The employer saves paying FICA on the amount deducted pre-tax.
- If the cost of the transit pass or voucher exceeds $230, any amount over $230 can be deducted from employee wages on an after-tax basis.
Benefits services firms can handle the administration of pretax programs. Examples of firms that offer such services include Accor/CommuterCheck, Benefit Resource, Flex-Plan Services and WageWorks.
For additional information, check out King County Metro’s Pre-tax Tool Kit. Employers are also highly encouraged to consult a tax advisor for detailed information regarding the tax implications of commute benefits and incentives.*When the employer and employee share the cost of the pass, ticket book or voucher, the total combined tax-free and pre-tax amounts may not exceed $230 per month per employee.
