Commuter Choice Incentives - The New Business Math
© 2000 Environmental Defense
June 26, 2000
This is a brief information tool for those considering Commuter Choice programs. The information on the attached tables is illustrative of savings; your actual savings and benefit options will vary. Consult with appropriate tax officials or accountants for your specific savings. The weblinks offered below provide more detailed information on setting up a Commuter Choice program in your area.
What is Commuter Choice?
Commuter Choice can be broadly defined as any one or series of options an employer offers an employee as an incentive for not driving alone to work. Several of these options can provide bona fide cash savings to the employer and employee under the Internal Revenue Code {26 USC 132 (f)}. In other words, it is an inexpensive fringe benefit of employment.
What are the cash savings options?
Employers may provide all of the commuting cost as a fringe benefit. The Federal limit that qualifies for a business expense is $65 per employee per month (pe/pm).
Employers may allow employees to use pre-tax income to purchase a transit pass or voucher. Again, the Federal limit is $65 pe/pm. Employees pay no federal or FICA tax, and depending on the state, those taxes are not calculated. Employers pay no FICA.
Share the fare. The combined limit is still $65 pe/pm. In 2002 it will increase to $100 pe/pm.
"Cash-out" the parking space (also known as pay-me-not-to-drive). If an employee gives up an employer-paid parking space, the employer may opt to pay the cost of the space as taxable income to the employee up to $175 per month. An employer federal tax exemption up to this limit still applies.
See the attached charts for the options and the amount of the benefit relative to its cost. No matter which option you choose everyone gains something with Commuter Choice.
Why would I seek or offer these options?
Commuter Choice is business savvy. For workers who rely heavily on transit to get to work, everyone can save money with Commuter Choice. In a tight labor market, a comprehensive Commuter Choice benefit package can be the competitive edge in attracting and retaining employees. Commuter Choice can free up valued parking spaces downtown by giving employees the "pay-me-not-to-drive" option. When fewer employees drive solo to work the less congestion you – and they – are likely to experience.
Commuter Choice is good for employees. Entry level workers, who spend the greatest percentage of their salary getting to and from work, will see their take home pay increase, after taxes. Other employees can save or even make more money, simply by getting out of their solo driving routine and using Commuter Choice. The frustration and stress of driving in rush hour traffic can be diminished making employees more productive during working hours. Add a guaranteed ride home and the anxiety of getting home in an emergency evaporates.
Commuter Choice is good for the environment. Reducing the number of vehicle miles traveled can reduce the volume of greenhouse gas emissions that we put into the atmosphere. That reduction can improve health conditions for those prone to asthma and other respiratory ailments – which can mean a reduction in sick time. The same reduction can slow the depletion of the ozone – which is good for the planet.
My employees want to telework. I don’t see any "bona fide cash savings" there.
There are currently no direct savings related to telework, however, if your employee currently drives to work and the telework arrangement is an agreeable one, pay them not to drive! You can take a tax deduction on the cost you pay for their parking space. In many cases, there are creative ways to make the Commuter Choice incentives work for your employees.
Is this an administrative nightmare?
Not at all. Commuter Choice benefits are not subject to the Internal Revenue Service flexible spending account or cafeteria plans (Section 125 of IRC), so paperwork is kept to a bare minimum. Additionally there is a growing service industry dedicated to coordinating all the administrative details in establishing a Commuter Choice benefit program locally or nationally. Below are some websites for additional information.
This is the first I’ve heard about Commuter Choice. Why don’t more people know about it? What can I do to help?
Commuter Choice can only become effective if people are aware of it and are able to take advantage of the benefit.
If it's not available in your workplace, ask your employer to explore and offer Commuter Choice benefit options – they are as right for business as they are for the environment.
Ask state and local government to offer Commuter Choice to their employees. State enhancements to the federal incentives can be enacted as a way to grow smarter economic development. Public/private, business and environmental partnerships demonstrate the practical benefits to Commuter Choice.
Examine your own commute and work options – telecommuting, flexible work schedules, carpooling, walking or biking to work or transit - all are environmentally sound options to driving alone to work.
Where can I go for more information on Commuter Choice?
The Federal Transit Administration has a Commuter Choice toolkit that you can order or download on line by accessing www.fta.dot.gov You can also calculate your approximate savings by accessing www.commutercheck.com. For information on Commuter Choice administration services, visit www.pre-tax.net.
State level incentives. Several states including Georgia, New Jersey, Washington and Maryland offer or will offer some level of Commuter Choice incentive in addition to the federally legislated options. Virginia will likely consider legislation in its 2001 session. Of these, Maryland’s Commuter Choice Tax Credit, offers the most significant incentive to employers who offer their employees a transit benefit option. Businesses can take a 50% tax credit for the cost of their employees who travel to or from a worksite in the state up to a maximum credit of $30 per employee per month. More information on this program can be found at www.mtamaryland.com.
**As income, employers and employees are subject to payroll taxes; if an employee uses a portion of the pay.me.not.to.drive benefit for transit or van pool, the amount of Federal and State limits are free of payroll tax.