Tea 21

Transit /Vanpool Benefit Program: Saving Your Company Money

The Transportation Equity Act for the 21st Century signed can save your companies time and money. Whether its deductions from business income taxes or reduced payroll expenses, there are many possibilities to save your company money. Under TEA-21, the Transit/Vanpool Benefit Program is a provision of the Internal Revenue Code that lets your company pay for the employee's cost of commuting to work, other than driving alone. Under Section 132 (f) of the Internal Revenue Code, an employer can provide up to $100 per month, $1,200 a year, to those employees who commute by transit or vanpool and qualified parking expenses up to $175 a month, $2,100 a year. The employer can deduct these costs as business expenses and the employees do not report the subsidy as income for tax purposes.

Tea 21 quick Links Employer Benefits Benefit Options Transit/vanpool benefits Parking cashout program other considerations Q&A IRS code section 132(f) Benefit program in action

Employer Benefits

Advantages to employers include both a tax deduction for the expense, and savings on payroll taxes, FICA, disability insurance and payments into 401(k) plans. Don't miss the advantages of the program in action.

In New York for example, employers found that providing transit subsidies saved between 30-40% over providing the same dollar value to employees in the form of salaries.

Benefit Options

There are several ways to provide the benefit to your employees:

• An employer may provide the transit/vanpool benefit in addition to an employee's current salary. The benefit would be free of all payroll and income taxes to the employee, and the employer would deduct the cost from their business income taxes. This is considered a transit subsidy program. Employers who offer a $30 subsidy or more per month are eligible for the National Standard of Excellence established by the EPA.
  
• An employer may permit employees to set aside (in lieu of) some of their pre-tax income to pay for transit or vanpools. Employees would not pay income or payroll taxes on the amount of the benefit, and employers would not pay payroll taxes because the pass is seen as a benefit and not taxable salary.
• An employer may share the cost of commuting with the employee. Employers may give their employees part of the commuting expense tax free in addition to their compensation and allow the employees to set aside part of their gross income to pay the remaining amount, up to the limit of $100.

These benefits are not permitted to be part of "cafeteria" plans or flexible spending accounts.

The Transit /Vanpool Benefit

The employer can provide a cash reimbursement to an employee for public transit or vanpool transportation costs for trips taken between the employee's home and place of business. A cash reimbursement is only permitted if a voucher which may be exchanged for a transit or vanpool pass is not readily available. A transit pass includes any pass, ticket, voucher or similar item entitling a person to transportation on mass transit or provided by a vanpool. In St. Louis, businesses can become a pass vendor and provide transit passes directly to the employees.

Employers can provide a combination of transit and vanpool benefits to an employee as long as the maximum monthly benefit does not exceed $100

Parking Cash Out Program

As a part of the Transit/Vanpool Benefit Program, employers could establish parking cash out programs where employees may choose to cash out the value of an employer-provided parking space, forego parking, and receive the taxable cash value of the parking or a tax-free transit/vanpool benefit. The employer transfers its expenditure for the parking space, assuming its leased, to a payment to the employee. If the employee chooses the cash value instead of the transit/vanpool benefit, that amount will be treated as salary. The employee would pay income and payroll taxes on the new amount.

If the value exceeds $100 on the parking space, then the employee could accept the transit/vanpool benefit and receive the balance in taxable salary. The employer only incurs payroll taxes on the cash value provided. This additional compensation gives employees the option of financing other modes of transit not funded under the program such as walking, bicycling, carpooling, roller blading, or other means of commuting to work.

For example, a company provides employees parking at $55 a month. The company changes its parking policy to allow employees to choose from the following options: keep the parking spot worth $55 a month, give up the parking spot and receive $55 extra each month in salary, or get a $55 reimbursement for transit or vanpool expenses.

Other Considerations

Under the Transit/Vanpool Benefit Program, an employee can receive a transit, vanpool or combination with one another up to $100 a month.

When considering a vanpool benefit, a vanpool is defined as any vehicle that has a seating capacity of at least 6 adults (not including the driver) and at least 80% of the mileage must be used for purposes of transporting employees in connection with commuting to work. The program does take into account inflation, the legislation provides for the limit to increase from $65 to $100 for taxable years beginning after December 31, 2001.

With regards to providing transit passes on site, becoming a pass vendor is as easy as filling out a form. For more info, email CMT.