COMMUTER CHOICE INITIATIVE
What is it?
Section 132(f)(2) sets the maximum benefits at:
relieving employers of many restrictions and filing requirements
What can employers offer?
Tax-Free Benefit — Employers may subsidize transit or vanpool fares up to $110 per month, in addition to current compensation. Employees receive the benefit tax-free. Employers get a full tax deduction and do not pay payroll taxes or other costs on the amount provided.
Pre-Tax Benefit — Employees can use up to $110 per month or $1,320 per year of their gross income, usually before taxes, to pay for transit or vanpool fares. Thus, an employee who used the maximum $1,320 can save over $200 per year in taxes. Employers save on payroll taxes and other costs that they would normally pay on the amount set aside by their employees — usually in the range of a 10% savings. Since pre-tax use of employees' salary is not subject to cafeteria-type use and plan restrictions, this program is easy to structure and administer.
Share the Fare — Employers may also combine the two above options. An employer may provide a tax-free benefit of $55 per month and let the employee use $55 of his or her pre-tax salary to pay for the remaining portion of the tax-free amount. In this case, the employer obtains a tax deduction and exemption to avoid payroll taxes for the amount set aside by the employee. The latter savings helps offset the cost of the tax-free benefit.
Who is eligible?
How does it work?
The commuter benefit is usually given in the form of a monthly, annual or single bus/rail pass, and/or monthly vanpool "bucks." Subsidy amount is reported on IRS form 1120-U.S. Corporation Income Tax Return, line 25, Employee Benefit programs.
For more information, call 214-747-RIDE (7433).
