Offering employees and tenants benefits, programs, and amenities to improve their commutes is more than just a smart retention and recruitment strategy, it’s also a great way to save on taxes and reduce costs for the business and employees!
Commuter benefits (sometimes described as commute trip reduction incentives) can include many different types of subsidies, programs, amenities, and allowances that help employees get to and from work in a sustainable way, including:
- Subsidized transit passes
- Allowing employees to use their own pre-tax income to buy transit or vanpool services
- Bike or walk subsidies or incentives
- Active commute facilities, like showers, secure bicycle parking, or lockers
- Vanpool and vanshare subsidies
- Carpool benefits
- … And more!
Internal Revenue Code Section 132(f) “Qualified Transportation Fringe” allows employers to offer up to $315 per month in qualified commuter benefits tax-free in 2024, meaning that it’s cheaper to offer those benefits than an equivalent cash raise.
Seattle’s Commuter Benefits Ordinance
What is the Commuter Benefits Ordinance?
The City of Seattle passed a Commuter Benefits Ordinance that requires employers to offer their employees the minimum of a pre-tax commuter benefit. This means businesses with more than 20 employees worldwide are required to offer employees the opportunity to make a monthly pre-tax payroll deduction for transit or vanpool expenses.
Pre-tax commuter benefits are codified in Internal Revenue Code Section 132(f) as, “Qualified Transportation Fringe.” This section allows for up to $315 per employee per month to be offered tax-free (as an employer-provided benefit or from the employee’s own income) in 2024. Commuter benefits are intended to encourage the use of alternatives to driving alone to work to reduce congestion, reduce emissions, and improve accessibility to downtown businesses.
How Companies Can Comply
There are many ways to comply, with the minimum threshold allowing employees to use their own pre-tax income to purchase their transit and vanpool needs. In addition to saving employees hundreds of dollars, employers can save as much as 8% on payroll taxes, making pre-tax benefits a win for everyone!
The only way that an employee can use pre-tax income to purchase transit passes or vanpool products is for the employer to make the pre-tax deductions and purchase products on the employee’s behalf. This is especially easy for Puget Sound employers who have access to ORCA Business programs, which make managing employee transit passes simple and affordable.
The ORCA Business Passport program allows employers to offer a partially or fully subsidized ORCA pass to each employee at deeply below-market rates, meeting and exceeding the requirements of the Ordinance.
B&O and PUT Tax Credit
What is the Tax Credit?
Employers and property managers are able to claim a tax credit toward their Business & Occupation taxes or their public utility tax if they spend money on employee or tenant commuter benefits, amenities, and programs. Qualified Commute Trip Reduction (CTR) incentives (or commuter benefits) include ride-sharing programs like Vanpooling or carpooling, public transportation benefits like ORCA transit passes, as well as active commute benefits like bicycle benefits.
Organizations can use their Washington State Department of Revenue account to apply between January 1 and January 31. Employers should count all employees who receive the benefit, not their total number of employees, and consider incentives distributed in the applicable year. When applying, expect to provide the dollar value that the business wishes to claim as well as contact information. The Department of Revenue may reach out to learn more as part of their standard procedures.
How it Can Help
The B&O Tax credit for Commute Trip Reduction incentives is equal to 50% of the cost of the benefit being provided, up to $60 per employee or tenant annually. This cannot exceed a maximum of $100,000 a year allotted for this tax credit. The application coincides with the federal tax cycle on a first-come, first-served basis and the total amount available is capped at $2.75 million.