Transit riders and vanpoolers who take advantage of pre-tax commuter benefits with their employer will find that their maximum monthly limit decrease to $130 starting January 1, 2014 from $245 in 2013.
The American Taxpayer Relief Act of 2012 (HR 8) restored the pre-tax transit and vanpool commuter benefits to be on par with the qualified parking benefit temporarily for the 2013 calendar year. That parity ends December 31, 2013.
At this time, the 2014 monthly limits for qualified monthly transportation benefits are:
up to $130 per employee per month for public transportation and vanpool
up to $250 per employee per month for qualified parking, or
up to $380 per employee per month for both public transportation and qualified parking
Employers can select one of the following four commuter benefit options to offer to their employees:
The option for employees to pay for their transit or vanpool expenses with pre-tax dollars, as allowed by current federal law;
A transit or vanpool subsidy to reduce, or cover, employees’ monthly transit or vanpool costs;
A low-cost or free shuttle, vanpool, or bus service operated by or for the employer; or
An alternative method that would be equally as effective as the other options in reducing single-occupant vehicle trips (and/or vehicle emissions).
Building on the success of similar programs adopted in the cities of San Francisco, Berkeley and Richmond, as well as the San Francisco International Airport, the Program facilitates a regional approach to encourage the use of sustainable commute modes, such as public transit, ridesharing, bicycling and walking, in the effort to reduce greenhouse gas emissions from the transportation sector, reducing traffic congestion and improving air quality.
In the Bay Area, where these programs are already in place, most employers have chosen the pre-tax option (option 1 above), which can provide economic benefits to both employers and employees through tax savings. Employers can reduce payroll taxes (approximately 9 percent of subject wages), and employees can lower their commute costs by up to 40 percent. Plan Implementation
The Bay Area Air Quality Management District and the Metropolitan Transportation Commission are currently developing plans for adopting and implementing the Program, and will conduct public workshops to present, discuss and receive comments on the Program. View dates and locations of upcoming workshops. See also New Bay Area Commuter Benefit Policy
up to $245 per employee withholding per month for vanpool and all public transportation
up to $245 per employee withholding per month for qualified parking, or
up to $490 per employee withholding per month for both public transportation and qualified parking
This is great news but how does one go about setting aside pre-tax income for a commute benefit? Here are some steps you can take to get started.
First, make sure you’re using a qualifying commute alternative. The benefit is available to commuters who commute to work in a vanpool, use public transit, or pay for qualified parking. (Carpooling does not currently qualify for pre-tax benefits.)
Next, ask your employer if commuter tax benefits are offered; typically Human Resources or Benefits department will know. If your employer isn’t aware of the benefit, share the IRS Employer’s Tax Guide to Fringe Benefits with them.
Step three is to set up a payroll withholding for the qualified commute benefit you use. Keep in mind, your employer must have this benefit set up as a pre-tax withholding option in the payroll system.
There is also a benefit for commuting by bicycle though the process is slightly different because unlike other pre-tax commuter benefits the bicycle benefit cannot be withheld from your pay. See the full tax code here
Note: Withe the passage of California Senate Bill 1339, employers in the nine-county San Francisco Bay Are with 50 ore more employees will be required to offer some sort of commuter benefit – one of the options is to offer employees to withhold pre-tax income for vanpooling, transit or qualified parking. Look for more information on the roll-out of this bill in summer of 2013. The Bay Area Air Quality Management District and the Metropolitan Transportation Commission are developing the Rule.
up to $245 per employee per month for vanpool and all public transportation
up to $245 per employee per month for qualified parking, or
up to $490 per employee per month for both public transportation and qualified parking
The effective date for the revised limits above allows for retroactivity back to January 1, 2012 if an employer so chooses under Sec. 203.
In 2012, the IRS Transportation (Commuting) Benefits rolled back to pre-2009 levels of $125 per month (adjusted for inflation) for vanpool expenses and public transit passes. The maximum was temporarily raised to $230 per month under The American Recovery and Reinvestment Act (ARRA) of 2009 and extended under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 to equal the monthly qualified commuter parking limit.
Qualified bicycle commuting reimbursements will remain unchanged at $20 per month in the new year.
By offering pre-tax commute benefits to employees, employers can save on paying FICA payroll taxes and employees can take advantage of saving on federal withholding and FICA taxes on the amount deducted. Find out more from these third-party commute benefit administrators: Benefit Resource Inc., Clipper Direct, TranBen, TransitCenter (TransitChek), and WageWorks.