Commuting is a daily ritual for most Americans, with the average trek clocking in at around 26.6 minutes. Luckily, there’s a way for you to make your employees’ morning and afternoon jaunts a little more bearable. Say hello to commuter benefits.
Gusto makes payroll, benefits, and HR actually easy.
Put simply, commuter benefits are perks you give your employees to help them save money on any expenses related to traveling to and from work. They can also help you and your team shrink your tax bills.
They’re so neat, in fact, that a few cities across the U.S. require that certain companies provide them to their teams.
How do commuter benefits help me and my employees save on taxes?
A commuter benefit plan is a type of qualified fringe benefit.
Commonly, the program takes the form of an employer-funded (deductible!) account. The account has dollars that are not taxed so long as employees only use them to pay for qualified transportation to and from work. (No, they can’t use the money at that delicious sushi bar for lunch.)
Pre-tax payroll deductions lower your employees’ taxable income—the amount they contribute is not subject to income or FICA taxes. Employees’ pre-tax contributions also reduce your share of FICA taxes.
This can make a big impact. Let’s say your employee spends $130 a month on their subway pass. If they’re taxed at 35 percent, they could rake in savings of up to $546 a year, while you both would save up to $119 a year on FICA payroll taxes.
But here’s a big but to keep in mind: If your employees are lower income, the benefits could actually decrease the refund they might get under the Earned Income Tax Credit (EITC). Make sure your employees talk to an accountant or tax professional before signing up for commuter benefits.
What can commuter benefits be used for?
Here’s what your employees can use their commuter benefits for:
- Parking near work (or where you take public transit)
- Public transit (this includes things like fare cards, tokens, passes, etc.)
- Bike maintenance costs (limited to $20, which is a lot less than the parking and transit limit of $255). Update: Unfortunately for our bicycling friends, this benefit was suspended until January 1st, 2026 in the recent tax reform bill.
- Lyft Line and Uber Pool (depending on where you live). This is subject to some requirements, but if your team uses an approved commuter card, they’ll make sure you get a proper, qualified ride.
Here’s what those benefits can’t be used for:
- Gas and mileage
- Car insurance
- Wear-and-tear on your car
- Highway and bridge tolls
- Taxis and full-price Ubers and Lyfts
- Parking that isn’t near your office or where you park to take public transportation
Keep in mind that only employees can be covered with a commuter benefit, not their spouses or dependents.
I’m down. How do I set up commuter benefits?
First, decide if you want to offer it yourself or go through a benefits provider, like Gusto. The good thing about having another company manage commuter benefits is that it helps you deduct the correct amount from payroll while helping you follow the encyclopedia of laws on the federal, state, and local levels.
If you decide to do it yourself, talk to an accountant or tax professional to make sure you consider all of these things.
There are a few ways you can set up a commuter benefits program:
- Employee-paid benefit: The most popular method is to make it a pre-tax benefit, which saves both you and your employees on taxes (income tax for them and payroll taxes for both of you). This option also costs you next to nothing.
- Employer-subsidized benefit: The next most common method is to give employees money each month to help them pay for transit and/or parking. You can pay for the entire benefit or contribute a certain dollar amount. This actually leads to more money for your employee than a bonus in the same amount, thanks to the tax savings. And you’ll get to pay less employer-paid payroll taxes on these parking or commuter subsidies than you would on an equivalent wage increase.
- Get your own transportation: And the less popular option, which is probably only feasible if you’re a larger company, is to provide some kind of shuttle service.
How much money can my employees and I contribute?
Commuter benefit accounts can be funded by both employers and employees.
In 2019, you and your employee can collectively contribute up to $265 a month in pre-tax dollars toward parking and another $265 toward transit. You can even do a combination of both benefits up to each one’s limit!
Your maximum contribution per month depends on what your team is putting in. Contributions beyond the pre-tax limits are taxed as an unqualified fringe benefit.
The amount you subsidize is completely up to you.
Some companies give more for parking than transit if they are located in a pricey urban center, some give less for parking if they want to encourage employees to use transit, and some give the same for all methods.
Does commuter benefits money expire?
Sort of. Funds roll over from month to month, and commuter benefits money won’t expire while employees are at your company. However, employees that leave your company won’t be able to access their funds.
Are there any local laws I should be aware of?
It depends on where you live. Some cities (like San Francisco and New York City) have laws around when you must offer commuter benefits, so it’s also best to check local and state laws to make sure you are complying with any requirements.
Check out the chart below to find out if your city requires you to offer these perks.
|City||Yes, you have to offer them if you have…|
|San Francisco, CA||20 or more full-time employees|
|Richmond, CA||10 or more employees who work an average of at least ten hours per week|
|Berkeley, CA||10 or more full-time employees|
|New York City||20 or more full-time employees|
|Washington D.C.||20 or more full-time employees|
If you operate in any of these cities, all of your employees don’t have to take advantage of the benefit, but you are required to offer it. City not listed? Don’t worry, you can still add them to your benefits package.