In some regions, offering commuter benefits is mandatory for businesses of a certain size. Overall, these benefits are designed to ease the financial burden of commuting and encourage the use of public transportation. …(c) Substantiation requirements…The expense must be substantiated within a reasonable period of time. An expense substantiated to the payor within 180 days after it has been paid will be treated as having been substantiated within a reasonable period of time. What are the substantiation requirements if an employer distributes transit passes? There are no substantiation requirements if the employer distributes transit passes.
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Put in place to encourage the use of public transportation, these programs allow employers and employees to use pre-tax dollars to pay for a variety of commuting expenses. Public transit subsidies are one of the most common types of commuter benefits offered by employers. These subsidies help cover the costs of bus, train, or subway fares, making it more affordable for employees to use public transportation. Employees who travel to work by way of ride-share services might be able to get reimbursed for these expenses. Some employers provide monthly or annual stipends to help offset these costs.
- Employers offer a tax-advantaged program where employees allocate pre-tax dollars for commuting expenses, reducing overall taxable income and increasing take-home pay.
- Commuter benefits funds are accessible with a valid debit card or a transportation voucher.
- Additionally, identifying specific needs, such as parking subsidies or transit passes, can help tailor the benefits to maximize employee engagement and usage.
- A 2023 Newsweek1 poll found that 58% of respondents believe employers should pay for commute costs.
Per IRS regulations, employers cannot refund unused commuter benefits funds to employees. In the United States, the Internal Revenue Code (IRC) Section 132(f) governs the tax treatment of commuter benefits. Employers can provide tax-free transportation fringe benefits up to certain limits.
Setting up a commuter benefits program
Any employer can give employees the gift of a commuter tax benefit. If you haven’t already, do the math for getting to the office by train, car, bus, ferry, bike, even walking, and combinations of those options. Remember that some trains charge different prices by zones, so driving to a stop farther away from your house, commuter benefits meaning depending on parking fees, could save you some money every day.
Employers must ensure that commuter benefits are offered fairly and equitably to all eligible employees, regardless of their role or status within the organization. Instead of providing parking spaces, employers can offer cash incentives to employees who choose not to drive. This encourages the use of alternative transportation methods, such as public transit, biking, or walking. Biking benefits are designed to encourage employees to cycle to work by offering reimbursements for biking-related expenses, such as bike maintenance, purchase, and storage. Employers may also provide facilities such as bike racks, showers, and lockers. Any business with ten or more employees who work an average of at least ten hours per week must offer either pe-tax benefits, employer-paid benefits, or employer-provided transit.
What expenses are covered by commuter benefits?
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- Employers can offer either fully or partially subsidized parking fees for employees who drive to work.
- However, going this route can limit the eligible monthly expenses you can reimburse your employees for.
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- These savings can add up quickly, especially for growing or large businesses.
- That could be more cost-effective than paying to park by the day or week.
You can’t provide cash reimbursement for transit expenses unless you substantiate expenses with receipts. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law. But some cities, such as San Francisco, New York City, and Washington D.C., require you to offer transit benefits if you employ a certain number of full-time employees.
Employers can offer direct reimbursements, prepaid parking passes, or payroll deductions to subsidize parking expenses. This benefit can be tailored based on location and employee needs. To get a better idea of potential options, here are some common types of expenses covered under commuter benefits programs. Generally, you can access the money in your commuter benefits account in a few ways. You save because you can place funds into a commuter benefits plan before they are taxed. Most of the time, employers or their third-party benefits administrators decide whether commuter funds expire yearly or can roll over to the following year.
What happens to an employee’s commuter benefits account balance if they’re terminated?
He’s written extensively on health benefits, contributing to his career total of more than 350 blog posts across diverse industries. With experience in both digital marketing agencies and in-house teams, Chase combines strategic insight with creative storytelling. Outside of work, he’s an aspiring fiction author, landscape photographer, and small business owner. If you opt to reimburse employees tax-free for their transportation expenses, you need to substantiate those expenses with receipts or invoices. Both employer and employee contributions count toward the $325 monthly limit (2025). Accordingly, the availability of employee pre-tax contributions for each benefit is reduced by the amount of any tax-free employer contributions.
If you’re thinking about adding commuter benefits to your company’s list of benefits, here is some information on how it works. The business location option does not include expenses for parking at home. Employees submit commuting-related expenses for employer reimbursement, often with a set monthly or annual limit. This benefit can be structured to cover specific commuting modes or a broad range of expenses. Ride-sharing incentives support employees who carpool or use ride-sharing services like Uber or Lyft. Employers can offer reimbursement for ride-sharing expenses or provide dedicated carpool parking spaces.
Employees can no longer use commuter benefits for biking-related expenses. Most employees expect certain workplace benefits, such as health insurance or retirement plans. But coming up with unique and appealing perks, like commuter benefits, can further your chances of attracting and retaining top talent. Employees contribute pre-tax income to an FSA, which they can then use to cover qualified transportation expenses.
Can employees use their commuter benefits funds to pay for gas?
Vanpooling programs involve a group of employees sharing a ride in a van provided by the employer or a third party. This is particularly effective for employees who live in the same geographic area and work similar hours. This article will explain commuter benefits, how different types of benefits work, and what expenses you can use them for. The IRS has also confirmed that employers can choose to require that employees certify the use of the transit benefit for their own commuting purposes.
Specifically, this includes transit passes, transit tokens, fare cards, and vouchers. For employers and employees, benefits that qualify as transportation fringe benefits are not a part of an employee’s taxable wages. These commuter benefits are exempt from federal income and payroll taxes. Some commuter benefits programs may offer reimbursement for parking expenses incurred at or near your place of work or at the location for which you commute to work.
This benefit can be particularly valuable in urban areas where parking costs are high. Conversely, post-tax benefits are employer-provided benefits that are paid using an employee’s after-tax income. Unlike pre-tax benefits, these deductions are made after taxes have been calculated on the employee’s gross income.
Commuter benefits plans offer considerable benefits to companies as well. In particular, employers can take advantage of the following perks. Employers, especially large companies, may provide shuttle services that transport employees from key locations, such as transit hubs or residential areas, to the workplace. These shuttles can be equipped with amenities like Wi-Fi and comfortable seating. While not a traditional commuter benefit, offering telecommuting options and flexible work schedules can significantly reduce the need for daily commuting.
Pay for additional commuting costs out-of-pocket and keep receipts. Firstly, consider if you already offer flexible work models like hybrid or fully remote. Secondly, it’s a great idea to ask your team about which kind of commuter assistance program they are interested in the most. Commuter benefits are most often used only for travel between home and work—not for expenses related to traveling from an office to another business or client meeting. Sign up to receive a bi-monthly digest of our latest benefits and insurance-related articles.