SIGN UP

What are commuter benefits?

Written by: Chase Charaba
Share:
Published on July 13, 2022.

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?

In this article, we’ll explain commuter benefits, how different types of benefits work, and what expenses you can use for them.

Want to create a standout employee benefits package? Learn about the types of fringe benefits 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 can also be called 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 IRSfor 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.

Transportation benefits also provide unique perks, such as:

  • Reducing frustration during commutes: Avoiding traffic congestion with transit passes, parking hassles with parking perks, and other benefits
  • Helping employees financially: Paying for part of or all of your workers’ transportation costs helps them to be able to afford gas, transit passes, or parking
  • Reducing your environmental impact: By offering carpooling, transit passes, or other alternatives to driving, you can reduce your organization’s carbon footprint, which can appeal to environmentally-conscious employees and consumers

How do commuter benefits work?

There are many types of commuter benefit programs available. Each of these works differently from the next.

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 employers1 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.

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

  • A ride in a commuter highway vehicle up to $280/month (combined with transit pass allowance)
    • 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 $280/month (combined with commuter highway allowance)
    • Must be for mass transit or vehicles that seat at least six adults, including buses, rail, and ferry
    • Only a tax-free expense if a voucher isn’t available for you to distribute to employees
  • Qualified parking up to $280/month
    • For 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 for 2017 through 2026.

Any amount over the $280 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 mass transit, parking, and vanpooling, there are many taxable benefit options available.

Examples of taxable commuter benefits include:

  • Carpooling perks
  • Providing a company vehicle
  • Ride-sharing funds, such as for Uber or Lyft
  • Toll reimbursement
  • Vehicle maintenance allowance
  • Bicycle maintenance allowance

You could also provide a fuel card or reimbursement to help your employees financially.

Am I required to offer commuter benefits?

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

Jurisdiction

Summary

Ordinance

Washington, D.C.

Any organization with 20 or more full-time employees must offer commuter benefits. This includes subsidies, pre-tax benefits, or transit passes.

Sustainable D.C. Act of 2014

New York City

Any organization with 20 or more full-time employees must offer pre-tax benefits for public transportation costs or vanpools.

NYC Commuter Benefits Law2

Seattle

Any organization with 20 or more full-time employees must offer pre-tax benefits for public transportation costs.

Seattle Commuter Benefits Ordinance3

New Jersey

Any organization in the state of New Jersey with 20 or more full-time employees must offer pre-tax elections for public transit costs.

New Jersey Commuter Benefit Ordinance

Los Angeles

Any organization with 50 or more full-time employees must offer pre-tax benefits for public transportation costs.

 

San Francisco Bay Area

Any organization with 50 or more full-time employees must offer commuter benefits.

Bay Area Air Quality Management District’s Bay Area Commuter Benefits Program4

Richmond, California

Any business with 10 or more employees who work an average of at least 10 hours per week must offer either pre-tax benefits, employer-paid benefits, or employer-provided transit.

Richmond Commuter Benefits Ordinance5

Berkeley, California

Any business with 10 or more employees must offer their staff a commuter program that encourages employees to use public transit, vanpools, or bicycles.

TRACC Berkeley Commuter Benefits Program6

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 $280 per month for pre-tax transportation benefits.

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 your workforce, 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 interested in offering 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 expenses like health, wellness, and remote work.

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

1. https://www.irs.gov/publications/p15b#en_US_2022_publink1000193740

2. https://www1.nyc.gov/site/dca/about/commuter-benefits-FAQs.page

3. https://www.seattle.gov/laborstandards/ordinances/commuter-benefits

4. https://www.baaqmd.gov/rules-and-compliance/commuter-benefits

5. https://www.ci.richmond.ca.us/DocumentCenter/View/29960/RichmondCBO?bidId=

6.https://berkeleyca.gov/doing-business/operating-berkeley/tracc-commuter-benefits

Originally published on July 13, 2022. Last updated July 13, 2022.
Share:

Comments

Additional Resources

View All Resources