Employers: Commuter Choice – A Payroll Tax Incentive

Posted July 9, 2019

Have you heard of Commuter Choice? Commuter Choice is a tax incentive based on Section 132(f) of the federal tax code, but it does so much more. Commuter Choice allows businesses to give employees a better benefits package, helps your employees and business save on taxes, as well as helps employers improve local air quality, while reducing traffic congestion.

Commuter Choice programs provide a framework for employers to offer commute benefit options will encourage employees to get to wok in ways that are less polluting than driving alone. Programs such as Commuter Choice serve as attractive employee benefits which help with recruitment and retention of quality employees.

What are Qualified Transportation Fringe Benefits?

A transit pass
Transportation in a commuter highway vehicle (vanpool) between the employee’s residence and place of employment
Qualified parking

These benefits can be provided directly to employees as tax-free benefits or the employee can pay for the benefits tax-free using a salary reduction arrangement. Those benefits are also exempt from Federal Insurance Contributions Act, Medicare, and Federal Unemployment Tax Act taxes. The benefit is limited to an inflation-adjusted maximum amount. The amount increased to $265 per month for 2019 from $260 in 2018.

Employer offered benefits to eligible employees include:

Employer subsidy
Employee sets aside a monthly amount on a pre-tax basis
Or a combination of both

Benefit	Employee Incentive	Employer Incentive
Pretax only	Employees may set aside up to $265/month for transit, vanpools and/or qualified parking and save on payroll taxes including FICA, local, state and federal withholding	Employers save from a decrease in FICA payments as a result of shifting taxable salary (for which employers pay FICA) to pretax (no FICA)
Subsidy only	Employees receive the subsidy tax-free and pay no taxes on the amount	Employers do not have to pay FICA on the subsidy but can no longer deduct the payment as a business expense
Combination of Pretax and Subsidy	Employees receive the benefits for each portion listed above	Employers’ situation is the same for each portion as listed above