Commuter benefits, as the name implies, are benefits offered to employees that have some relation to the costs and hassle of commuting to the workplace.They’re also known as transportation benefits or transit benefits.
There are many reasons employers may want to offer commuter benefits for employees. These types of benefits can offset a frustrating commute and make it easier for employees to afford the costs associated with coming to a central location.
It can also show that the employer recognizes many employees’ preference not to have to commute and be a consolation when remote work isn’t an option. Many commuter benefits can be offered on a pretax basis, so they can also reduce the employee and employer tax burden. Encouraging employees to utilize public transportation can result in less road congestion and pollution, benefiting everyone.
Pretax Commuter Benefits
As noted above, some types of commuter benefits can be offered to employees on a pretax basis. This means the cost or reimbursement is not considered taxable income. Here are the types of commuter benefits that can be offered on a pretax basis per Internal Revenue Service (IRS) regulations:
-Bus passes (or passes for other local transportation options, such as ferries, trains, trams, etc.)
-Reimbursed parking fees or employer-paid parking for employees, which would include things like paid
parking lots/garages, parking meters, etc.
-Vanpooling (as long as specific criteria are met)
Of course, for these to qualify under the IRS rules, the costs incurred must be primarily for work. There are also limits on the total amount of expenses that can be reimbursed in any given month for a single employee.
After-Tax Commuter Benefits
Beyond the options noted above, there are other ways employers can help employees offset commuting costs. Though these options won’t have the same pretax benefit, they’re still useful for employers to consider. Here are a few examples:
-Help organize carpooling groups.
-Allow employees to work remotely some or all of the time (eliminating commuting costs).
-Provide company cars when appropriate.
-Distribute taxi vouchers or ride-sharing credits, especially for nonregular work functions or to/from the
airport for work travel.
-Provide toll cards or toll reimbursement.
-Give employees fuel cards or fuel discount programs.
-Offer reimbursement for bicycle maintenance/repair when used for work.
(Note: This item was previously allowed as a pretax benefit, but it was removed as part of the Tax Cuts and Jobs Act of 2017; this item is scheduled to return to pretax in 2026, unless legislation changes again between now and then.
-Offer incentive programs that promote things like carpooling and use of public transit, giving employees rewards for doing so.
-Create free shuttle services to pick employees up from a central location, which can reduce parking problems for those without on-site parking and can reduce commuting costs for employees who can reduce the total mileage on personal vehicles.
Note that some of these benefits (both pretax and taxed options) can be arranged via third-party providers, which can be useful for employers that do not wish to take on additional administrative responsibilities but would still like to offer these benefits for employees.