Section 132(f) of the Internal Revenue Code allows employers to provide tax-free benefits to employees related to transit, vanpools, parking, and bike-to-work; these Qualified Transportation Fringe Benefits are commonly referred to as commuter benefits. Businesses may deduct the administrative cost of these employer-paid benefits from their gross income for purposes of taxation. Both the employer and employee save on taxes since they do not pay federal income or payroll taxes on these benefits.
Under the tax code, employers may offer these Qualified Transportation Fringe Benefits in one of six ways:
- Subsidize an employee up to $125 per month for transit and commuter high- way vehicles (e.g., vanpool).
- Subsidize an employee up to $240 per month for parking.
- Allow an employee to reduce his or her income on a pre-tax basis to cover the costs of transit and vanpools up to $125 per month.
- Allow an employee to reduce his or her income on a pre-tax basis to cover the costs of parking up to $240 per month.
- Share the costs of the benefit with the employee; under current law, transit and vanpool expenses up to $125 per month and/or qualified parking expenses up to $240 per month are tax-free.
- Reimburse an employee up to $20 per month ($240 per year) for eligible expenses incurred for bicycling to work on a regular basis.