Program Overview
The changes in the law relate to transit commuter benefits, sometimes called transit pass benefits or qualified transportation fringe benefits. The employer-paid transit commuter benefits are passes, vouchers, or sometimes just cash, provided to employees to cover their transit or qualified vanpool commuting costs. The employee-paid benefits are the same benefits paid for by reducing the employee's wages or salary before taxes are applied.

The law also permits employees and employers to split the costs of the benefits. Employees do not pay federal income or payroll taxes on transit commuter benefits, except on the amount (if any) in excess of $100 per month. Generally, state and local taxes do not apply either. Thus, transit commuter benefits are treated much like other commonly available fringe benefits (i.e. employer-provided health insurance). Employers can deduct their costs for providing such benefits and they avoid payroll taxes on such benefits, regardless of who pays.

Who is Eligible?
Private employers, non-profit organizations, and public agencies can provide transit commuter benefits to employees, tax-free. Self-employed individuals, parters, 2% shareholders of corporations, sole proprietors, and other independent contractors are not eligible under IRS rules.

Employer Paid Benefits
Federal law exempts the first $100 per month in transit benefits from federal income and payroll taxes, and generally state and local taxes as well. The employer in this case effectively provides their employees with a tax-free transportation bonus. The employer's cost of providing benefits can be deducted as a normal business expense. Even better, unlike ordinary wage payments, employers do not have to pay their share of federal payroll taxes on transit commuter benefits.

Employee Paid Benefits
The first $100 per month of commuting costs is paid by the employee, so that it will be completely exempt from federal income and payroll taxes. This will add up to a $15 per month ($180 per year) and sometimes larger tax savings for most employees. Such pre-tax deductions from an employee's pay are comparable to those often used to pay for medical benefits under a cafeteria plan, or retirement benefits under a 401(k) plan.

For more information on the Commuter Choice Program, please contact the Palmetto Breeze at (843) 757-5782.