Employers, Employees Using Transit Receive Tax Benefits Under TEA-21

Early this June, new legislation was passed which could make some dramatic changes in how commuters pay for transit.

In addition to authorizing highway, highway safety, transit and other surface transportation programs for the next 6 years, the Transportation Equity Act for the 21st Century (known as TEA-21) changes tax laws regarding employee transit benefits.

Tax Free Benefits

Previously, tax laws allowed employers to spend up to $65 per month, per employee on transit fees, including public transit and van pool fees. Many companies participated in this program, but since it was usually seen as a new benefits package, there were some who did not take advantage of it.

Under the new law, however, these benefits are now delivered as a pre-tax expense for both employers and employees. The advantages are twofold: employers can avoid paying payroll taxes on these benefits while employees can see their transit dollars go further, since the benefits no longer come as taxable income.

For employers, the savings can be dramatic. Assuming a 33 percent combined state and federal income tax, FICA taxes, and unemployment, disability, workers' compensation and retirement costs driven by salary, employers save up to $78 per year for each employee receiving the transit benefits. As an example, a company with 400 employees participating could save over $30,000 per year.

These same tax advantages benefit employees as well. The maximum benefit of $780 per year is equivalent to nearly $1,100 of taxable income. Since employees pay no income tax on the transit or van pool benefit, they save over $300 per year.

This benefit grows in 2002, when the nontaxable limit for transit and van pool benefits increases from $65 to $100 per month.

Employees may also receive an additional benefit of up to $175 per month ($2,100 per year) for parking, including fees at Park and Ride lots. Employers can also offer a parking cash out program where employees may choose to cash out the value of employer-provided parking, forego parking, and receive the taxable cash value of the parking. Check with your company to see if such a program is offered.

Commuter Check Program

One option for implementing a transit benefit package is Commuter Check, locally administered through RIDES for Bay Area Commuters.

The Commuter Check program provides a way for participants to use a wide variety of transit options. Virtually all of the transit agencies in the Bay Area, including BART, County Connection, SMART, and ACE, accept Commuter Checks.

Similarly, van pool costs may also be paid for with Commuter Checks. One popular van pool facilitator, VPSI Commuter Vanpools, offers complete vanpool packages which include a vehicle, maintenance, and a no-deductible insurance program, all available on a month-to-month lease.

Commuter Checks are available in denominations of $20, $30, and $35. RIDES offers a variety of information packets on implementing Commuter Check programs. For details, contact Stuart Baker at (800) 755-POOL. VPSI may be reached at (510) 577-7550.

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