What are commuter benefits?
What’s the most essential part of your work day? Getting there! You want to make sure your employees have an easy commute, and one way to do that is chipping in for their costs.
A qualified commuter benefit plan set up by an employer can offer some great perks for your employees - you can contribute funds to offset their commuting and/or parking costs, or you can offer pre-tax employee-paid payroll deductions for these costs, or you can do a combination of a pre-tax deduction and a subsidy. It’s all up to you how much to contribute. Some companies give more for parking than transit if they are located in a pricey urban center, some give less if they want to encourage employees to use transit, and some give the same for all methods.
Tax benefits of both options
Pre-tax employee-paid payroll deduction: This option costs you next to nothing and can actually save you money on your taxes. Your employees get to save on their federal (and sometimes state and local) income and other payroll taxes. It also reduces your employer-paid payroll taxes to federal and state (and sometimes local) agencies.
Subsidize your employee’s commuting and/or parking costs: Because of the tax benefit, this option is actually more money in your employee’s pocket than a pay raise for the same amount. Additionally, you’ll get to pay less employer-paid payroll taxes on these parking or commuter subsidies than you would on an equivalent wage increase.
It’s important to note though, the most pre-tax money that can go to a parking or transit benefit is $255 per month (you can offer both $255 for parking and $255 for transit though - it’s not one or the other). Anything over that limit could be considered a taxable fringe benefit.
Some cities (like San Francisco) have laws around when you must offer commuter benefits, so it’s also best to check your local and state laws to make sure you are complying with any requirements!