Some Presidio employers offer Commuter Choice Incentives (such as Commuter Checks) as an employee benefit. Please check with your Presidio employer to find out if your organization participates in such a program.
If you are a Presidio employer and would like to offer Commuter Choice Incentives to your employees, information is offered below. If you have questions, please contact the Presidio Trust Transportation Department at (415) 561-5300.
What are Commuter Choice Incentives?
The Commuter Choice Tax Benefits program is a valuable addition to any benefits package. Unlike employee benefits like health care or vacation leave, employees can use the Commuter Choice Tax Benefit every day.
The program, based on Section 132(f) of the federal tax code, allows employers to offer employees a variety of financial incentives for the use of alternative commute modes, including buses, trains, and vanpools. Employers and employees save money, employees save time, the employer is viewed as a good corporate citizen and the environment benefits from reduced traffic congestion. As vehicle exhaust is the number one source of air pollution in the Bay Area, Commuter Choice Tax Benefits literally means cleaner air.
What Options Do Employers Have?
When administering a Commuter Choice Tax Benefits program, the employer has the ability to offer the benefit in one of three ways:
- In addition to compensation (offer a subsidy)
- In lieu of compensation (allow employees to set aside pre-tax dollars to pay for transit or vanpool costs)
- As a combination of these two methods (employers subsidize part of the commuting cost and allow employees to pay for the remainder of the cost, up to the monthly limit, with pre-tax dollars)
The current federal limit for the transit/vanpool benefit is $105 a month per employee.
The Commuter Choice Tax Benefits program is exempt from the usual restrictions and reporting requirements that accompany other pre-tax programs allowed by the IRS. There are no plan filings or forms for the employer to fill out, no irrevocable elections, and no mandatory enrollment dates. It is not subject to the regulations governing cafeteria plans –and, in fact, cannot be offered as part of a cafeteria plan.
Selecting a Program for your Budget
More and more employers are offering the full transit benefit to their employees. There’s a program for every budget.
When employers contribute to employee commuting costs, it is the equivalent of offering a low cost wage enhancement. If $105 was given as a pay increase instead of a commuter benefit, the employer would have to pay payroll taxes on the amount given and employees would pay more in income taxes. When you consider the overall value of offering Commuter Choice Tax Benefits to employees, it may cost the employer more not to provide these benefits.
Let’s look at some examples:
As a subsidy: Consider an employer that wants to give an employee a $105 a month ($1,260 per year) increase in salary. The cost to the business, as a conservative estimate, could be $1,356 per employee due to additional FICA and Medicare taxes (about 7.65%). Employees, meanwhile, would see only about a $756 increase in their paycheck, thanks to income and payroll taxes amounting to approximately 40%.
On the other hand, if the employer gives the employees $1,260 per year as a Commuter Choice Tax Benefit, the employer could write the subsidy off as a business expense. Employees, in turn, would see the entire $1,260 made available for their use.
As a pre-tax payroll deduction: By establishing a pre-tax deduction program, you permit employees to exchange part of their gross income for transit or vanpool costs. When your employees pay for the benefit using pre-tax dollars, they save federal, state, and payroll taxes, on what they set aside. Employees typically save about 40%, depending on their tax situation. When employees use pre-tax dollars to pay for transit or vanpool costs, the employer also saves. For example: If an employee sets aside $105 a month ($1,260 a year) for the commuter benefit, the employer will save about $96 a year in payroll taxes on that employee, and, in addition, will save payroll expenses such as FUTA, SUI and SDI. For more information on how to calculate your company’s savings, go to the Environmental Protection Agency's Commuter Choice website
First, contact representatives from top management, human resources, payroll, and the accounting/finance departments to coordinate efforts and to ensure buy-in.
Next, be sure to check with your tax specialist on how to set up the program and the documentation that is needed.
To get a better idea about the type of benefit to offer, you can survey employees to learn about their commuting habits and benefit needs.
Then, decide if you are going to offer the benefit to all employees or to a select group of employees. These benefits do not have non-discrimination requirements. For example, you can offer the benefit to employees who work in one location versus another.
Look at your budget to decide if you’re going to offer the benefit as a subsidy, pretax deduction, or as a combination of both.
If you are going to offer a subsidy, decide the level of benefit to offer.
Next, decide if you are going to administer the program internally or outsource the function. There are advantages to both. Typically, smaller companies can afford to manage their own programs. Offering these benefits is really pretty simple, even for larger companies.
Plan for the distribution of the benefit. Decide how you will distribute the benefit to employees.
Update the personnel manual to include the benefit and qualifications for receiving the benefit.
Announce the program to employees. Be sure to list all the program rules and sign up dates. Be sure to provide a benefit sign-up sheet, especially if you are allowing employees to set aside pre-tax wages for the benefit. They will need to authorize you to reduce their salary.
Make changes, as necessary to W-2 statements. If you are offering the benefit as a subsidy, there will be no changes in the W-2 form. If you are offering it as a pre-tax benefit, it will be noted in the appropriate box on the W-2.
Purchase and distribute the benefit. Monitor your program. Count the savings!