The Federal tax code (Internal Revenue Source Code 132(f)) allows employers to provide tax-free transit and vanpool benefits to their employees. Called “qualified transportation fringe benefits,” these commuter benefits can be deducted from corporate gross income for purposes of taxation when paid for by an employer. The employer and employee save on taxes since neither pays federal income or payroll taxes on these benefits.

In 1998, the scope of tax-free commuter benefits was expanded. Today, qualified transportation fringe benefits may be offered by employers in three ways:

1. Company covers full cost of the benefit—Up to $105 per month for transit and vanpool expenses and $200 per month for qualified parking expenses is offered tax-free to employees and does not incur payroll taxes for the employer or employee.
2. Company offers a “pre-tax” benefit—Employees may have up to $105 per month taken out of their current monthly pay towards the cost of commuting on transit or in vanpools before taxes are applied. Employees save federal income and payroll taxes. Many employers prefer this option because the employee pays the cost, and the employer saves money because FICA, Federal Insurance Contributions Act payments to Social Security and Medicare, and unemployment taxes do not apply on the deducted amount.
3. Employer and employee share costs—Under this option, the employer and employee each pay a share. The employer, for example, might offer $40 per month in transit/vanpool benefits and allow the employee to reserve up to $65 per month as a pre-tax benefit. The employer could also offer subsidized parking, paying $40 per month for a $105 space, and allowing the employee to pay for the other $65 through a pre-tax salary deduction.

For more information or assistance, please contact Commuter Services of North Florida at 1-888-454-RIDE (7433) or Laurie Revell. You can also read the EPA’s Commuter Tax Benefits publication.