1. What is Commuter Tax Benefit?
2. How are these benefits offered?
3. Is Commuter Tax Benefit subject to complex IRS requirements?
4. Do I have flexibility in how I set up Commuter Tax Benefit?
5. How does the basic salary deduction option work?
7. What types of transit services qualify for Commuter Tax Benefit?
1. What is Commuter Tax Benefit?
Commuter Tax Benefit is Connecticut's program to promote the federal tax law allowing employees to set aside pre-tax income to pay for transit and vanpool fares. As of January 2008, employees may set aside up to $115 a month ($1380 a year) of their salaries before taxes to pay for transit and vanpool fares. An employee may also set aside up to $220 a month ($2640 a year) to pay for qualified parking expenses.
2. How are these benefits offered?
Employers have three options for offering Commuter Tax Benefit:
- 1. Provide the benefit in addition to an employee's current salary. For the employee, the benefit is free from payroll and income taxes. The employer deducts the cost as an expense on the business income tax filing.
- 2. Permit employees to set aside some of their gross income to pay for transit, vanpools and qualified parking. Employees would not pay income or payroll taxes on the deduction, and the employer would not pay payroll taxes since the amount is not treated as taxable income.
- 3. "Share the fare." Provide employees with part of their commuting expense tax-free in addition to their compensation while also allowing them to set aside part of their gross income to pay the remaining amount.
3. Is Commuter Tax Benefit subject to complex IRS requirements?
Commuter Tax Benefit has many advantages over other pre-tax programs. It is exempt from the usual restrictions that accompany many other pre-tax programs allowed by the IRS. There are no plan filings, forms to fill out or mandatory enrollment dates.
4. Do I have flexibility in how I set up Commuter Tax Benefit?
You can set up Commuter Tax Benefit to meet your own needs. You can offer it to all or just some of your employees. If you decide to provide the commute benefit in addition to compensation, you can use it as an annual benefit or as a reward, incentive or bonus.
5. How does the basic salary deduction option work?
First, an employee authorizes you to deduct a fixed amount from his/her compensation in pre-tax dollars. (This amount cannot exceed the monthly train, bus, vanpool or parking costs incurred.)
The employee will receive this deducted amount back either in the form of a TransitChek voucher, a train or bus pass, direct payment of vanpool fare, or cash. Qualified parking payments are made only on a cash reimbursement basis – the employee must provide appropriate receipts or bills. Many third-party providers offer administration of Commuter Tax Benefit as part of their employee services package.
Qualified parking is parking at or near an employer's worksite, or at a facility from which an employee commutes via transit, vanpool or carpool.
7. What types of transit services qualify for Commuter Tax Benefit?
Any type of transit service, publicly or privately owned or operated, including bus, rail, subway, ferry, subscription bus, shuttle bus, and commuter highway vehicles under contract that provide to the public and/or employees, general or special service on a regular and continuing basis.
Employers may establish a "parking cash out" program whereby employees may choose to "cash out" the value of employer-provided parking, forego parking and receive the taxable cash value of the parking or receive a tax-free transit or vanpool benefit of up to $115 per month. If the employee accepts cash instead of a tax-free transit or vanpool benefit, then the employee will have to pay payroll and income tax on the amount, and the employer will incur payroll taxes on the cash value.
Parking cash out works like this: the employer establishes a monthly value for a parking space at its site. Each employee could then choose among various commuting options in the following manner:
- 1. Keep the parking space with no charge.
- 2. Give up the parking space, commute via transit or vanpool and receive the amount of the parking space value in tax-free payment of your transit or vanpool fare.
- 3. Join a carpool and agree to give up all but one of the carpoolers' parking spaces. The carpoolers receive a share of the taxable cash payment each month.
- 4. Give up the parking space and choose to bicycle or walk to work and receive the value of the parking space in taxable income.
Free assistance is available to help you set up Commuter Tax Benefit in your workplace. For more information, please contact us.
