The IRS allows employers to withhold a set amount of an employee's pre-tax income for bus commuting costs. Employers may also provide a monthly fare subsidy as a part of the qualified IRS Transportation Fringe Benefit, under section 132(F) of the IRS tax code. This lowers an employee's taxable income, putting more money in their pocket. It also lowers the employers' FICA burden. It's a win-win-win. For the employee, the employer, and traffic congestion!
Currently, up to $130 per month is excludable from the gross income of an employee for transportation in a commuter highway vehicle and transit passes provided by an employer.
"A transit pass is any pass, token, farecard, voucher, or similar item (including an item exchangeable for fare media) that entitles a person to transportation—
(a) On mass transit facilities (whether or not publicly owned); or
(b) Provided by any person in the business of transporting persons for compensation or hire in a highway vehicle with a seating capacity of at least 6 adults (excluding the driver)."
Here's how it works:
- Your employer takes the cost of your transit (bus) costs (up to $245 per month) out of your paycheck before figuring taxes. This lowers your taxable income, which puts more money back into your paycheck.
- You pay your transit expenses and submit a receipt to your employer for a tax-free reimbursement. It's that simple!
Unlike a typical pre-tax "FLEX Plan", a qualified transportation benefit program is not a use-it-or-lose-it program. Monies that go unused in your account are automatically rolled over for future use.
Your employer has to be the one to establish and administer the program. It's a great way for them to save money and offer a new employee benefit at no cost. Have them contact the SmartTrips™ office serving their community for more information.
Here's how it works for bus riders:
- Your employer lets employees know the program is available and signs them up. If they already have pre-tax programs in place, they can set this employee benefit up the same way
- When processing payroll, the employer proportionately reduces their FICA tax for each participating employee.
- When the employee submits their transit expenses to the employer for reimbursement, the employer processes the check according to the rules they have established for this benefit.