Setting Up A Tax-Advantage Commuter Benefits Program

The recent surge in gas prices has made getting to work considerably more expensive for most Americans, especially those driving long distances. For a relatively small investment, employers can help employees reduce their commuting costs—while providing them with additional options for traveling to work—by implementing a tax-advantaged commuter benefits program. Offering commuter assistance benefits can also be cost-effective for employers, who save money not only on taxes, but also on parking facilities.

Many employees want help with commuting costs and appreciate alternatives to driving their own cars. If made affordable and convenient, some employees would switch from driving to using public transportation and/or vanpools. Offering commuting assistance may also make a company more attractive to potential job applicants who do not have their own cars or are reluctant to drive long distances to get to work.

Employees who drive their own cars to and from work on a daily basis may experience stress due to traffic jams and long periods of time spent alone on the road. By contrast, employees who travel by train can spend time working or relaxing en route to the office, and employees participating in ride-sharing programs can chat with coworkers. In many areas, cars or vans with multiple passengers can drive in high occupancy vehicle lanes on the highway, making the commute quicker.

Solo drivers incur costs not only for themselves, but also for their employers. Providing adequate parking for employees can be very expensive, especially for companies in locations where land is expensive. The average annual per-space cost of parking is $600 for surface parking, $1,500 for parking structures, and $2,400 for underground parking, according to the government-sponsored Best Workplaces for Commuters program.

A company offering commuter benefits may subsidize the entire cost of alternative forms of transportation or share the cost with employees. The IRS permits employers to contribute up to $105 per month, tax free, toward employee transit or vanpool expenses; employees are allowed to have up to $105 per month deducted from their paychecks on a pre-tax basis to pay for transit or vanpools. Both employers and employees save on taxes, as neither pays FICA taxes on these benefits. Some states also provide tax credits to employers with commuter benefit programs.

For example, the annual cost to a Virginia employer for providing a typical employee with $105 a month in transit benefits amounts to $710.01 after state and federal tax savings are taken into account, according to Arlington Transportation Partners. Meanwhile, the after-tax value to the employee of these benefits was found to be $1,772.19.

Vanpooling is an ideal solution for bridging the gap between public transportation and the workplace. Vans can shuttle employees to and from train stations, bus stops, ferry terminals, and park-and-ride lots. Some companies may also set up a carpooling matching program, either internally or through an agency.

By installing bike racks, showers, and a locker room—or contracting with a nearby fitness club to use their facilities—employers can encourage employees to cycle or walk at least part of the way to work. Employees who struggle to find the time for a fitness routine may appreciate the option of combining commuting with exercising. Companies may also integrate these commuting options into existing wellness programs, offering employees incentives to burn their own fuel instead of spending money on gas.

Companies can further encourage employees to stop driving alone to work by implementing a parking cash out program, which offers cash incentives for giving up parking spaces. This approach can be especially useful for managing high parking demands. However, while up to $205 a month in parking expenses may be deducted from federal taxes, cash payments in lieu of parking are considered taxable compensation.

Employees will also spend less time and money commuting if they make fewer trips to the office. Compressed workweeks or regular telecommuting help employees reduce their commuting, and these schedules may also contribute to better work/life balance.

Some employees who would otherwise be interested in taking part in commuter programs may express reluctance about leaving their cars at home out of fear of being stranded due to unforeseen circumstances, such as unscheduled overtime, family emergencies, or a change in the weather. Employers can reassure these employees by setting up an "emergency rides home" program. If vehicles and drivers are not readily available when needed, companies can contract with a taxi operator to provide emergency rides at a discount.

Business owners who are uncertain about whether demand exists among their staff for commuter benefits can survey their employees about their preferences. Companies may want to set up an informational session in which various modes of commuter transportation are introduced and discussed. In addition to considerations related to cost and convenience, employees may be drawn to the broader benefits of driving less, including the opportunity to minimize their personal contributions to air pollution, traffic congestion, greenhouse gas emissions, and U.S. dependence on foreign oil.