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Go beyond pretax benefits to build a commuter-support program
Traffic congestion and the rising cost of commuting are prodding more employers to offer transit benefits. Another spur: employees can use pretax dollars to pay for certain commuting costs.
"A lot of employees are asking, 'How do I make this commute into my office either less expensive or more efficient and convenient?'" said Dan Neuburger, president of WageWorks commuter services in San Mateo, Calif. Adding to this pressure is the growing number of cities and localities—including
New York City,
Washington, D.C., and
San Francisco—that are mandating that most employers offer these benefits on a tax-free basis.
However, mandates and tax considerations should not be the only drivers of transit benefit design. Asking employees what they need to better manage their commutes to work could yield some important insight into how to expand these programs to meet the needs of a broader array of employees. In doing so, employers can build a program that can both reduce payroll taxes and help to attract and retain a talented workforce.
survey of 76 U.S. and Canadian employers conducted by Best Workplaces for Commuters, a public-private partnership that promotes transit benefits, and the Association for Commuter Transportation found that:
Start with Pretax Benefits
Internal Revenue Code
Section 132(a) excludes eligible transit-program funds from employees' gross income subject to federal taxes. Many states also exclude these monies from state and local taxes.
current IRS limits, in 2017 employee transit benefit programs can allow employees to use pretax dollars to cover up to:
In high-tax locations, like New York City, using pretax money can save employees up to 30 percent to 40 percent on their commuting costs.
These programs yield benefits to employers, too. Any pretax money that employees use for these benefits is also exempt from employers' payroll taxes.
In cities where employers are required by law to provide transit benefits, the local transit authorities will often provide information and support to employers that want to set up these programs. Third-party administrators can also help set up and administer these programs.
"In some cases, the vendor will provide a debit card that employees can use to purchase transit passes with pretax dollars," said Julie Bond, program director for Best Workplaces for Commuters. "In other cases, employees receive their passes in the mail."
[SHRM members-only toolkit:
Designing and Managing Flexible Benefits (Cafeteria) Plans]
Look Beyond IRS Limits
While the tax-free elements of a transit benefit program are important to most employees, employers should also consider what a transit program using after-tax dollars can offer. Employees living and working in areas that are not well-served by public transportation but that have free parking might not be able to take advantage of pretax transit benefits. In these cases, carpooling, telework opportunities and flexible schedules might be better options for helping employees manage their commutes.
An employer-provided carpool program, for example, could offer a ride-matching service that helps employees who live near each other form car pools or use van pool services.
However, it is important to keep in mind that any monetary car pool incentives an employer might offer are considered taxable income for the employee, while van pool incentives are not.
"Listen to your employees and find out what their needs are," said Bond. She suggested that employers survey their workforce to see what transit benefits employees want and will use. "It must be of value to employees because you don't want to set up a program that no one will use," she said.
Get In on Ride-Sharing
The growth of ride-sharing companies like Uber and Lyft is adding another dimension to transit benefits. "Ride-sharing will continue to grow as a form of commuting to and from work," said Neuburger. "That will not necessarily be in lieu of mass transit but could be used for the first and last mile of the commute"—that is, getting to mass transit hubs from home and from the workplace.
Ride-sharing services are partnering with transit benefit administration vendors to offer ride shares in a tax-compliant way so that they can be paid for with pretax income. Under IRS rules, the vehicles used must have seating for at least six adults, not including the driver.
Another role for ride-sharing services is in providing emergency rides home for employees using mass transit. This is especially important for employees who are used to driving themselves to work and may be unwilling to give up the freedom associated with that—especially if they have children or caregiving responsibilities and may need to get home on short notice.
Providing emergency rides home can be a way to address these concerns and encourage employees to try alternative commuting options.
Joanne Sammer is a New Jersey-based business and financial writer.
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