The WSJ today had a great article about an increasingly popular employee benefit – tax free commuter benefits. These benefits typically enable employees to reduce their taxable income and cut their commuting costs by an average of 30%. The federal tax code allows employers to provide both subsidized and non-subsidized tax-free transit, vanpool and parking benefits to employees. If you commute to work and your company offers this benefit, by all means – take advantage!
How It Works*
1. Pre-Tax Salary Deduction: Money deducted from a paycheck before taxes are taken out saves employees up to $500 each year on their commute! Here’s how it works. For the tax-free maximum of $115 a month for transit ($1,380 a year) or $220 for parking ($2,640 a year), gross salary will be reduced up to $330 a month, but take-home pay falls by only $200. This equals $130 in taxes saved each month—more than $1,500 annually to use for something else! Normally, the pre-tax salary deduction option also saves employers 8% of the amount used for commuting – often much more.
2. Company Benefit: If an employer chooses to pay for Commuter Check, it’s like free parking or a tax-free raise for the employee. Plus, the employer has no payroll tax on this added benefit. For example, giving salary with the same after-tax value as $1,380 in Commuter Checks would cost over $ 2,640—the difference is what’s saved in taxes!
3. Combination Plan: Any combination of the employee-paid and employer-paid options can be offered, as long as the total does not exceed $1,380 a year for transit or $2,640 a year for parking.
*From Accor Commuter Benefits Website
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