What are the implications of transportation benefits?

Dear Forgetful:
What a financial roller coaster this year has been! It’s no wonder you’ve forgotten how the tax benefits work. The first thing to remember is there are two ways to provide a tax-free transportation benefit to the company and to your employees: pre-tax payroll deductions, or tax-free fringe benefits.

With a payroll deduction, you can allow your employees to deduct up to $100 per month from their pay to cover bus, rail, ferry and vanpool fares. The use of pre-tax income for transportation services provides a benefit to employers and their employees — employers pay less payroll tax and employees pay less income tax.

Another way to provide a tax-free benefit is through a subsidy such as your company has instituted. As with the payroll deduction, employers can offer employees a tax-free subsidy of up to $100 per month to be used for bus, rail, ferry or vanpool fares. Because the IRS considers transit subsidies a business expense, employers can deduct these expenses for tax purposes. And your employees get a great benefit that will save them money on their commute. Be sure to work closely with your financial advisor to take full advantage of the deduction.

Kudos to your company for planning to reduce commute trips next year and saving the company and employees money at the same time! Here’s hoping other organizations will follow your example and reap the same benefits from the tax man in the New Year!
HOV