Federal law now allows employers to offer their employees a tax-free benefit for commuting to work using public transit. The tax code allows employees to purchase bus passes with pre-tax dollars, providing a financial incentive for using transit rather than driving alone. The pre-tax benefit is only available through the employer. There are three ways companies can provide this benefit.
Employee Pays through Pre-tax Dollars
Employers can purchase a small quantity of transit passes then deduct the cost of a pass from a participating employee's paycheck before taxes are applied to pay for the passes. The employee would not pay state and federal income tax, or payroll taxes on the benefit, thus increasing their take-home pay. This option is known as the "pre-tax" benefit.
Share the Cost
An employer can decide to share the cost of a bus pass with the employee. The employer purchases a small quantity of bus passes and provides them to participating employees at a discount rate. The employer pays a portion of the cost and the employee pays the remaining portion before taxes, giving both a tax savings.
The company pays for the entire cost of a bus pass in addition to an employee's current salary. The employee gets a free bus pass to commute to work and the employer can deduct the amount they pay as a tax-deductible business expense.
Once your company has decided to make commuter tax benefits available to employees, there are some simple steps to get the program up and running.
1) Make arrangements with payroll and accounting
- Set up a separate accounting code for 132(f) transit benefit funds. These funds cannot be combined with other pre-tax benefits.
- Decide when deductions will be made from employee paychecks.
- Decide when employees can change their deductions or participation.
- For more detailed information regarding the tax implications of commuter benefits you may wish to consult a tax advisor.
2) Promote commuter tax benefits and sign up employees
- Have employees complete a payroll pre-tax deduction authorization form. The Sample Pre-Tax Deduction Form can be customized to meet your company's specific needs.
Your payroll administrator or provider deducts the pre-tax dollars for each participating employee.
3) Purchase SunGO to ride transit
- Place transit orders online.
4) Distribute SunGO Cards & add passes or value for employees
- Once employees have a SunGO Card or SunGO ID & Card, they can easily add value or passes to the cards.
- If using a third-party payroll administrator, the passes or value can be added to cards through their services..