Enjoy Tax and Cost Savings

Promoting employee job satisfaction and improving environmental quality can be complicated tasks when you also have to keep an eye on the bottom line. Commuter benefits offer you a number of ways to save money and increase worker productivity.

Tax Savings:

Offering qualified transportation benefits can yield significant tax savings. Starting January 1, 2002, the federal tax code allows employers to offer their employees up to $100 per month in tax-free benefits for transit and vanpool passes. Alternatively, employees can set aside up to $100 per month pre-tax for transit or vanpool expenses. Neither the employer nor the employee pay payroll or income taxes on the benefit amount. In addition, several states offer tax credits to employers that offer commuter choice programs. Altogether, tax savings alone typically outweigh the small implementation costs of these programs.

Employers can offer three options to take advantage of tax-saving benefits:

• The employer covers the full cost of the benefit.
  Under this option, the employer pays significantly less for an employee's transportation tax-free up to the monthly limit. Because of the savings in payroll and income taxes, the employer pays significantly less than if it had given the employee a comparable increase in salary, and the employer is thus able to offer the employee a no-cost commute.
  
  
• The employee pays for transportation with pre-tax salary.
  Under this option, an employee can elect to purchase transit or vanpool passes up to the monthly limit, with money taken out of his or her pre-tax salary. Because of the savings in payroll and income taxes, the employee pays at least one-third less than if the passes were purchased with taxable income. The employer incurs no direct cost and saves taxes that it would otherwise have paid on that portion of the employee's salary.
  
  
• The employer and the employee share the cost of the benefit.
  Under this option, the employer pays for at least half the monthly limit of the employee's transportation tax-free. If the employee's commute expenses exceed the amount offered by the employer, he or she can pay for the difference with pre-tax income. This program incurs a low cost to the company and saves money in taxes for both the employer and the employee.

Other Cost Savings:

• Reduced employee recruiting and retention costs. Helping employees save money can raise their opinion of the employer, which reduces turnover and increases productivity. Employers then spend less time and money recruiting and training new employees.
  
  
• Reduced facility costs. Teleworkers need less space in the office, which means that building rent costs and furniture/equipment are reduced.
  
  
• Reduced parking expenses. Carpool, vanpool, and transit users require less parking space, saving the company money on rent, construction, and maintenance.

For more detailed information about the tax treatment of employer-provided commuting benefits, see our Federal Tax Benefit Brief (494K PDF).

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