Commuter Tax Benefit Program
The Internal Revenue Code permits employers to assist their employees with public transit and vanpooling commutation costs. This can be done in three ways:
How Does The Commuter Tax Benefit Work?The amount that is tax free is capped. The IRS sets the cap annually. The transit benefit cap is $260/month in 2018.
These funds are then excluded in the following tax calculations:
Commuter Tax Benefit ExampleAssume that the employee's transit or vanpool commutation cost is equal to the present cap of $260 monthly ($3120 annually).
Using the federal income tax bracket of 24%, an employee's income tax savings is $749 a year. In addition, the employee and employer both avoid paying the 7.65% tax for Social Security and Medicare on the same amount, so both save $239 annually.
The employee saves a total of $988 annually, which otherwise would have gone to federal taxes.
The employer saves $239 for each such participating employee.
Additional Commuter Tax BenefitsThe IRS also allows for a pre-tax parking benefit of $260/month in 2018. An employee who pays to park at a qualified parking area (such as a transit station) and then takes public transit or vanpools to work can receive a combination of the parking and transit benefit, up to $520/month.
Qualified bicycle commuting reimbursements, previously allowed up to $240 per year, can no longer be provided tax-free. Employers may continue to provide the bicycle benefit as a taxable benefit.
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