A commuter benefits program can be a great perk for working professionals. In congested areas where it can be difficult to drive to work, many individuals are forced to use alternative forms of transportation. Even those who live outside of city limits are often faced with long and expensive commutes that take a bite out of their salary.
In response, some cities have mandated that employers provide transit benefits. Read on to learn how companies can offer a commuter benefits program that offsets the costs of travel, as well as potential pros and cons of this and what kind of tax credits are available.
Creating a Commuter Benefits Program
One thing to note when setting up a commuter benefits program (which is considered a voluntary benefit) is that the Internal Revenue Service already allows employees to use up to $260 per month in pretax earnings to cover transportation costs. This is referred to as a “qualified transportation fringe benefit.” However, this is often barely enough to cover a portion of the costs of commuting to work daily.
Employers should carefully evaluate what the real cost for employees adds up to, as far as work commutes go. For example, the costs of maintaining a vehicle—gas, oil changes, tires, parking fees, insurance coverage and more—can add up quickly. Even when employees choose to commute using public transportation, fares can be expensive. The Society for Human Resource Management advises that pretax commuter benefits can save workers in New York City as much as 30 to 40 percent of their earnings.
One way to create a commuter benefits program is to provide the difference between IRS-allowed pretax benefits and the actual cost for employees. Corporate travel software can be used to track expenses, upload receipts and issue payments. Those who travel by airline or require hotel accommodations for work can book travel at reduced rates through the same platform.
Companies can also provide incentives for employees who use less costly forms of transportation, such as bicycling, carpooling and walking to work. Need some inspiration? Apple Inc. provides employees $100 each month for public transportation costs and has a shower and locker room available for employees who bike or walk to work.
The Pros and Cons of Employee Commuter Benefits
Just as there may be with any benefit program, commuter fringe benefits can have a few pros and cons. On the positive side, commuter benefits make individuals more mindful of their choices for travel, ultimately reducing their carbon footprint. Additionally, employees can deduct a portion of their qualified transportation cost from their tax return (up to $1200), including electronic toll transponders for accessing roadways with turnpikes.
Then there are the potential negatives of starting a commuting benefits program for employees. For instance, it must be carefully monitored to ensure that employees are accurately recording travel expenses into the associated software. Additionally, payroll must have a system for paying out the overage of benefits, once pretax dollars are used up each month. The fringe travel benefit is considered taxable income and must be paid as so (and reported to the IRS). The program also needs to be fair to all employees. Some may live closer and won’t require large reimbursements, while others might be traveling great distances and facing large travel expenses.
How Is U.S. Tax Reform Impacting Commuter Benefits?
As of December 31, 2017, HR Bill 2241 repealed certain deduction limits for employee transportation fringes. According to Lexology, this tax bill “disallows a deduction for expenses associated with providing any qualified transportation fringe to employees, and except as necessary for ensuring the safety of an employee, any expense incurred for providing transportation (or any payment or reimbursement) for an employee’s commuting between his or her residence and place of employment.” However, employees will be able to deduct their post-tax expenses.