What are commuter benefits?

When deciding which additional employee benefits to offer, there’s no shortage of perks or fringe benefits that can help supplement your benefits package.

If your staff must commute to work, offering a commuter benefit can be an excellent incentive for attracting and retaining your employees. But what are commuter benefits, and how do they work?

This article will explain commuter benefits, how different types of benefits work, and what expenses you can use them for.

Want to create a standout employee benefits package? Learn about the types of employee stipends available in our complete guide

What are commuter benefits programs?

Commuter benefits are employee perks that help your team offset the cost or time of commuting to and from work daily. These benefits are also known as transportation benefits, parking benefits, or employee transit benefits.

Some commuter benefits are offered by local governments, but most are established by employers as part of a benefits package. These benefits can either be pre-tax or taxable, with many organizations electing to follow guidance from the Internal Revenue Service (IRS) for providing qualified transportation benefits.

Why offer commuter benefits?

Employee benefits can help improve employee morale and engagement, reducing employee turnover. When your employees feel appreciated and taken care of, they’re more likely to feel satisfied with your organization and less likely to look for a new job.

Many employees value commuter and transportation benefits. A 2023 Newsweek poll¹ found that 58% of respondents believe employers should pay for commute costs.

Transportation benefits also provide unique perks, such as:

• Reducing frustration during commutes: They allow your employees to avoid traffic congestion with transit passes, parking hassles with parking passes, and other benefits.

• Helping employees financially: Paying for part or all of your workers’ transportation costs helps them to be able to afford gas, transit passes, or parking. Analysis from Clever² found that the average commuter spends more than $8,000 annually (or 19% of their income) on commute costs.

• Reducing your environmental impact: Many consumers and employees care about reducing their environmental impact. By offering carpooling, transit passes, or other alternatives to driving, you can reduce your organization’s carbon footprint, which can appeal to more environmentally-conscious customers and job applicants.

How do commuter benefits work?

There are many types of commuter benefit programs available. Each of these programs works differently from the next. Some allow you to provide upfront benefits while you can reimburse your employees for eligible expenses with others.

Pre-tax commuter benefits

Many cities and counties allow workers to purchase public transit cards or passes on a pre-tax basis. Additionally, the IRS allows employers³ to provide commuter benefits with pre-tax dollars for qualified expenses. These benefits can be provided directly by you or through a reimbursement arrangement.

If you opt to reimburse employees tax-free for their transportation expenses, you need to substantiate those expenses with receipts or invoices.

You can provide or reimburse employees for the following expenses tax-free:

• A ride in a commuter highway vehicle up to $300/month in 2023 (combined with transit pass allowances)
  • Must seat at least six adults in addition to the driver, with your employees occupying at least half of the seats

• Transit passes up to $300/month in 2023 (combined with commuter highway allowances)
  • Must be for mass transit or vehicles that seat at least six adults, including buses, rail, and ferries
  • Reimbursements are only a tax-free expense if a voucher isn’t available for you to distribute to employees. You can't provide cash reimbursement for transit expenses unless you substantiate expenses with receipts

• Qualified parking up to $300/month in 2023
  
  • For qualified parking expenses on or near the location of your workplace or somewhere your employees can commute using mass transit or carpools
  • Not tax-free for parking near employees’ homes

Previously, you could reimburse employees for bicycle commuting expenses, but the IRS suspended its tax-free status in 2017 for tax years through 2026.

Any amount over the $300 per month limit for the IRS qualified transportation benefits is considered taxable income.

Taxable benefits

While the IRS and local governments generally only allow qualified commuter benefit purchases for public transportation, parking, and vanpooling, there are many taxable benefit options available.

Examples of taxable commuter benefits include:

• Carpooling perks
• Use of a company vehicle
• Ride-sharing funds, such as allowances for Uber or Lyft
• Toll reimbursement
• Vehicle maintenance allowance
• Bicycle maintenance allowance
• Fuel cards or gas reimbursement (as a commuter benefit; Mileage reimbursement can be tax-free for eligible work-related situations)

Am I required to offer commuter benefits?

While there are no federal obligations to provide benefits to commuters, there are some state and local laws that require employers to offer commuter benefits to their workers.

Additionally, some local jurisdictions provide tax breaks and incentives to organizations that provide these benefits. For example, Washington state provides a tax credit to employers who provide a trip reduction incentive, such as ride-sharing, public transportation, car sharing, and non-motorized commuting. This can give employers up to $60 per employee per year.

Do commuter funds expire?

In most cases, employers or third-party benefit administrators decide whether their commuter funds expire yearly or if the amount is allowed to roll over. However, this is only the case with taxable benefits, as the IRS only allows up to $300 per month for pre-tax transportation benefits and $300 for parking.

How to offer commuter benefits to your employees

If you’re looking to help your employees with the cost of transportation, you have a few options. You can use a local government plan, vouchers, or use pre-tax payroll deductions to pay for your employees’ transit benefits. The IRS also allows for reimbursement of qualified transportation expenses using tax-free dollars. However, going this route can limit the eligible monthly expenses you can reimburse your employees for.

Another option for providing a flexible commuter benefits program is to offer a commuter and transportation employee stipend. You can reimburse your employees for any transportation expenses with a stipend, including those not listed in Publication 15-B, as a taxable benefit. You can also set up stipend reimbursement to be tax-free for qualified expenses. You should consult with a tax professional to determine the taxability of your commuter benefits program.

You can reimburse employees for the following transportation expenses with a stipend:

• Parking fees
• Transit passes and fares for commuter rail, light rail, ferries, bus service, shuttles, and more
• Gas expenses
• Ride-sharing services
• Tolls
• Bike or e-scooter sharing programs
• Vehicle maintenance
• Bicycle maintenance

The best part about a stipend is its flexibility. You can offer as much or as little allowance as your budget allows. You can also choose to offer allowances monthly, quarterly, or annually to best fit the needs of your organization.

You can also offer a single allowance for all transportation expenses. This gives your employees more freedom to use their commuter benefits the way they want to.

Conclusion

Transportation benefits and perks can be an excellent addition to your compensation package. Many types of commuter transportation benefits are available, including transit and parking passes, commuter highway vehicles, eligible computer benefits cards, and many other possibilities.

When deciding if you should offer commuter benefits to employees, you should consider the location of your business, how your workers commute, and what benefits they prefer.

No matter which benefits you decide to offer, commuter benefits are a great way to invest in your workforce and provide them with some financial relief.

If you’re ready to offer a comprehensive benefits package, PeopleKeep can help! Our benefits administration software helps organizations of all sizes offer health reimbursement arrangements (HRAs) and employee stipends for lifestyle benefits like health and wellness, professional development, remote work expenses, and more.

Schedule a call with a personalized benefits advisor to see how employee benefits can help you attract and retain top talent for your organization

This blog article was originally published on July 13, 2022. It was last updated on May 31, 2023.

1. https://www.newsweek.com/millennials-want-work-pay-commute-lunch-too-1801454?
2. https://listwithclever.com/research/best-and-worst-cities-for-commmuters-2022/#methodology
3. https://www.irs.gov/publications/p15b#en_US_2022_publink1000193740
4. https://berkeleyca.gov/doing-business/operating-berkeley/tracc-commuter-benefits
5. https://www1.nyc.gov/site/dca/about/commuter-benefits-FAQs.page
6. http://phlcouncil.com/wp-content/uploads/2022/04/CM-Gym-4.21-Commuter-Benefits-Ordinance.pdf
7. https://www.ci.richmond.ca.us/DocumentCenter/View/29960/RichmondCBO?bidId=
8. https://www.seattle.gov/laborstandards/ordinances/commuter-benefits
9. https://www.baaqmd.gov/rules-and-compliance/commuter-benefits