What You & Your Boss Should Know about Pre-Tax Commuter Benefits

What You & Your Boss Should Know about Pre-Tax Commuter Benefits

What You & Your Boss Should Know about Pre-Tax Commuter Benefits

 

Simply defined, commuter benefits — a.k.a. transportation benefits, transit benefits, etc. — are an employer-provided package that helps offset the costs for employees to get to work. Like HSAs, retirement plans, and similar benefits, commuter benefits are a tax-savvy, morale-boosting, mobility-centric way for employees and employers alike to choose smarter commute options and save money to boot.

Bonus: Pre-tax commuter benefit programs don’t come with the same onerous rules that medical and dependent-care programs do, and they’re more flexible for employers to implement.

But how do commuter benefits work? How do they impact employers versus employees? Where do taxes fit into the mix? What’s the real benefit of these benefits?

Here are the facts about commuter benefits that you — and your boss — should definitely know.

How It Works

As previously stated, commuter benefits are employer-provided—an employee can’t receive them on their own. It’s simple for an employer to set up a program:

1. Essentially, an employee who takes advantage of commuter benefits chooses to set aside a predetermined amount of money from their paycheck to cover commute costs. This amount is deducted from their paycheck before taxes.

2. The employer then provides the employee with a pass or a card that the employee can then use to pay for commute costs. This money can be used for transit fare or vanpool rides.

Depending on the business, employees might pay 100% of the costs with pre-tax payroll dollars—or an employer might contribute a certain amount to the costs, too.

What Employees Get Out of It

The first and most obvious benefit is that employees get to save on their income taxes. Because the money set aside for commute costs is deducted before taxes, their taxable income is lower. Boom—money saved.

Aside from the financial advantage, there are other positives for employees who use commuter benefits. Using transit eliminates the headache of driving solo through traffic and fighting for parking; employees can instead use their time on a bus or train more productively. Vanpooling and carpooling helps employees save wear and tear on their vehicles, also reducing costs. Biking to work has innumerable health benefits in addition to tax benefits. The list goes on.

What Employers Get Out of It

As employees save money on income taxes, employers also save money on payroll taxes. If a portion of money is being deducted before taxes, the actual payroll being taxed is lowered. Also, money that an employer contributes to an employee’s commute costs is also tax-deductible.

Besides saving money, there’s another benefit in providing a benefits program, which we can sum up in three words: retention, retention, retention. Commuter benefits are growing in popularity as a means of attracting and retaining a loyal workforce.

 

In a nutshell, it all comes down to this: Whether you’re an employer or an employee, you save money. Employees have yet another reason to keep working at the company, and the company keeps its talented workforce. Overall, it’s a beautiful win-win.

Want to learn more about commuter benefits and other ways employers can provide for employees’ transportation needs? Of course you do. Smart Commute can help you get started.