We hope this guide serves as an introduction to tax-free commuter benefits that your company can offer. These benefits can save your business money and help you retain a competitive workforce. Transit, bicycling and qualified parking can all qualify as tax-free benefits, and this guide will help you understand how to take advantage of these savings. Learning how to administer a pretax or tax-free subsidy program and whether or not your business could benefit from working with a third party administrator is a crucial step in program planning. This guide makes understanding options, rules and program administration easy so you can start your own commuter benefits program today! Most Seattle businesses offer some form of transportation benefit to their employees. Now they can save more than ever with tax-free commuter benefits!
How to Use This Guide
This guide describes the tax allowances for commuting expenses outlined in Internal Revenue Code Section 132(f). Employers can support employee commutes tax-free in one of three ways:
What are Tax-Free Commuter Benefits?
Commuter benefits describe the tax allowances for commuting expenses outlined in IRS Code Section 132(f)1. Employers and employees can save money in three different ways:
Unlike a tax credit, there are currently no requirements for businesses to file additional tax forms or reports when providing these benefits. Employers should consult their company’s tax accountant, payroll or benefits administrator to ensure compliance with applicable regulations, and keep careful records.
How much does the program cost?
Commuter benefit programs are generally cost-neutral or even save businesses money. They also promote goodwill amongst staff by helping them save money on their commutes. They can also free up nearby parking for customers and guests by encouraging employees to find new ways to commute. Transit benefits are a proven way to increase the use of public transportation by employees by cutting their commute cost up to 40%.
These benefits are available to all W-2 recipients through their employers; this excludes individuals who are self-employed such as sole proprietors, partners, persons who hold over 2% ownership in an S corporation, and contractors. By raising take home pay, the pre-tax benefit could reduce earned income tax credits for very low income workers, particularly part-time or seasonal workers. These individuals may choose to decline to participateinacommuterbenefitprogram.
What qualifies as a Tax-Free Benefit?
In 2023, tax-free subsidy or pre-tax transit spending is capped at $300 per employee per month for busses, light rail, ferry, water taxi, and vanpool
Qualified Parking Benefits
Parking provided to employees on or near the worksite, or a location from which employees take a commuter highway vehicle, mass transit or vanpool also qualify for an additional $300 benefit. When combining parking and transit benefits, employees can receive a total tax-free benefit of $600 per month in 2023.
What About State Taxes?
Businesses and property managers in Washington State who pay for transit benefits are eligible for a tax credit against their business and occupation (B&O) tax or public utility tax (PUT). Learn more online at the Washington State Department of Revenue website.
Why Offer A Commuter Benefits Program?
- Employers save on FICA taxes
- Employers are able to provide cost-neutral pre-tax or low-cost tax-free subsidies to their staff, attracting and retaining employees with competitive transit benefits
- Employers can earn awards and public recognition for supporting sustainable commutes Employers and employees can open more parking for customers and reduce congestion near the workplace
- Employees who use a sustainable commute to work may be healthier and less stressed, potentially saving the company on health insurance claims and sick leave
- Employees incur lower transit, vanpool or costs than if they paid out of pocket
Pick Your Plan
I want to…
Employer-Paid Subsidy Program
Covering the commute costs for your staff is cheaper than offering a cash raise of the equivalent amount because you don’t have to pay payroll taxes on the benefit, and the employees don’t pay federal income taxes associated value of the subsidy.
Employee-Paid Pre-Tax Program
Allowing your employees to use their own pre-tax income to cover their transit needs is a great way to save on payroll taxes while helping employees reduce their own commuting costs. Businesses can administer these simple programs inhouse or through a third-party vendor.
For employers who want to offer a subsidy and also allow employees to use their own pre-tax income to pay for the remainder of their transit or qualified parking costs, combining a subsidy with pre-tax is easy!
One Regional Card For All (ORCA)
ORCA (One Regional Card for All) passes are unique electronic cards used to pay for rides on public transportation throughout the Puget Sound region. Riders can load the card with funds and use it like a debit card, or add a variety of passes to cover regional buses, trains, streetcars and ferries. While companies outside of the Puget Sound region rely heavily on commuter debit cards provided by third-party vendors to provide their employees flexible commuter benefits over 1,200 Seattle businesses choose an ORCA Business Program!
ORCA Business Passport is a cost-effective, comprehensive, annual transportation pass program only available to employers. Employees canpayfortheirshareofPassportusingpre-tax income, saving the individual and company on taxes while getting Passport’s bulk pricing. Employers region-wide can participate with 5+ employees. Custom contracts are available to businesses with 500+ employees.
ORCA Business Choice allows employers to load a dollar amount ora variety of passes, including Puget Passes and Washington State Ferry passes, onto their employees’ ORCA cards at retail pricing on a monthly basis. Choice gives employers the flexibility to subsidize as much or as little of their employees’ transportation costs as they want while letting employees use pre-tax income to pay the remainder. Employers also have the flexibility to choose who they cover.
What About Third-Party Benefits Administrators?
Many businesses administer their commuter benefits program in-house. The workload associated with administering transportation benefits will vary depending on the complexity of benefits offered and the number of employees who choose to participate. When using an ORCA Business program, managing commuter benefits can be as simple as making one annual purchase and handing out cards!
For some businesses, an existing or new employee takes on these activities while other companies outsource these functions to a third-party. HR managers, payroll departments, transportation coordinators, managers and owners need to understand the requirements associated with managing an in-house commuter benefits program and assess their own capacity. A third-party vendor can handle tasks such as:
How Much Does It Cost?
Some benefits administrators charge a flat fee for this service, while others charge a dollar amount per person or a percentage of the tax savings. Commuter benefits programs are often cost-neutral when using a third party vendor, to administer employee pre-tax spending programs due to payroll tax savings.
How Do I Choose a Vendor?
All businesses are encouraged to shop around, first inquiring with their existing benefits administrator. ContactCommuteSeattleforalist of vendors who currently provide commuter benefits in the Seattle area.
For over 10 years, Commute Seattle has helped local businesses of all sizes unlock their potential and empower employees to use convenient, affordable, and sustainable transportation options. Commute Seattle offers free consultations to businesses interested in learning more about commuter benefits and ORCA Business programs. We provide consulting services, parking management strategies, best practices in providing transportation, and more. We also offer a variety of educational services including transportation fairs and commuter seminars.