Take advantage of tax-free commuter benefits
Employers can help riders receive up to $460 each month in BART transit and parking costs
April 15 is a good time to remind commuters about the hundreds of dollars in annual tax savings that are available to employees and employers who take advantage of federal pre-tax commuter benefits. The federal tax code allows tax-free transportation fringe benefits of up to $230 per month per employee for transit expenses and up to $230 per month for qualified parking. If your employer is on board with this benefit, BART riders are eligible to receive both the transit and monthly parking benefits of up to $460 per month. For those employers who don’t take advantage of this program, now is an excellent time to prepare for the 2010 tax period.
How Commuter Tax Benefits Work
The federal tax code allows the use of tax-free dollars to pay for transit commuting and parking costs through employer-sponsored programs. Commuter benefits are regulated by the Internal Revenue Code, Section 132(f)—Qualified Transportation Fringe. As of February 2009, companies can offer:
- a tax-free employer-paid subsidy
- a pre-tax employee-paid payroll deduction
- a combination of both of the above
Employees who set aside income on a pre-tax basis for a qualified transportation fringe benefit do not pay federal income or payroll taxes on the income set aside. If you have a combined (local, state, federal) tax rate of 40% and spend $190 per month on BART, you will save $76 each month or $912 a year. If you pay for monthly BART parking at $63 per month, you can save an additional $25 per month or $300 per year. If an employer chooses instead to subsidize the benefit it is actually more valuable than an equivalent raise because of the tax advantages (for example, if a subsidy of $190 is offered, this equals roughly $317 in taxable income). Commuters can check www.bart.gov for the links to calculate their potential savings and to find providers that can help their employers implement this easy tax-saving benefit
Providing pre-tax commuter benefits to employees can save payroll taxes for employers. The value of the benefit paid to employees is considered a tax-free transportation fringe benefit and not wage or salary compensation, therefore, payroll taxes do not apply.
Employers can save roughly 9% in payroll taxes (including FICA, SUI, SDI and city taxes) on the amount employees set aside. If the employer chooses to offer the benefit in addition to salary, giving an employee $120 in transit benefits is thus less expensive for an employer than raising the employee's salary by $120.
For more information and links to savings calculators and other resources, visit the Commuter Tax Benefits section.
For a video on how commuter tax benefits work, go to BARTtv.