Step 1 – Employer Offers Tax-free Transportation Benefits
You, the employer, may offer tax-free transportation benefits such
as transit passes and vanpool services as an employee incentive to
use alternative commute options. Federal tax law allows you to save
on corporate payroll taxes by deducting the full cost of these benefits
as a business expense. Your employees, in turn, receive the benefit
to a value of up to $115 per month on a tax free basis.
Step 2 – Employees Set Aside Pre-Tax Income to Pay for Transportation
You, the employer, may also offer your employees the option of setting
aside a portion of their pre-tax income via payroll deduction that
allows employees to purchase transit passes or pay for vanpool fares
themselves. The pre-tax income set aside amount is tax-free up to $115
per month and allows the employee to save on personal income taxes.
Step 3 – Share the Benefit and Split the Cost
You, the employer, can also choose to split the cost of purchasing
transit passes or paying vanpool fares with your employees. You cover
a portion of the cost directly and your employees cover the rest out
of pre-tax dollars. You and your employees can both benefit.
Employers providing transit passes or vanpools for their employees
keep a record of receipts of purchase and a list of pass recipients
and vanpool users. Additional paperwork is minimal. You don’t have
to file a plan. The IRS does not have to approve your program. You
can start your program at any time of the year. You can make it as
formal or informal as you like. For details or to make sure you are
in compliance, see
A Tax Benefit to Use Every Day.