COMMUTER CHOICE INITIATIVE

Under Internal Revenue Code Section 132(f)(4), made by Title IX, section 910 of TEA-21, employers are allowed to offer employees a choice between current or future compensation and "qualified transportation fringes," which include transit, vanpool or qualified parking benefits.

What is it?
Section 132(f)(2) sets the maximum benefits at:
  • Up to $110 per month, $1,320 per year for transit and vanpools
  • Transportation fringes are exempt from the Cafeteria Plan program,
        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?
  • Private employers
  • Nonprofit organizations and public agencies
  • Federal government agencies, including the military


  • 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).

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