Overview: Many employers provide commuter benefits to soften the blow of the high cost of commuting and to help recruit and/or retain valuable employees. This voluntary employee benefit program allows employees to reduce their monthly commuting expenses related to parking, transit, vanpooling and bicycling. Money used for eligible commuting expenses is excluded from gross income, and in many states, can also be excluded from state and local taxes.
Tax-free commuter benefits can be funded by:
In addition to helping with recruitment and retention, some employers provide transportation benefits for environmental and societal reasons. Driving to and from work on a regular basis takes a toll on the environment, traffic congestion and air quality. Offering commuter benefits may encourage workers to commute by mass transportation which, in turn, may reduce the number of commuters in cars, alleviate traffic jams, smog and damage to the environment.
Author: Tracy Morley, SPHR, Legal Editor
In Notice 2015-2, the IRS has provided much anticipated special administrative procedures applicable to fourth-quarter 2014 Form 941, Employer's Quarterly Tax Return, and 2014 Form W-2, Wage and Tax Statement, for employers that allowed employees to defer more than $130 a month for mass transit benefits in 2014.
On December 19, President Obama signed into law the Tax Increase Prevention Act of 2014 (TIPA) retroactively reinstating to January 1, 2014 more than 50 different tax benefits that expired on December 31, 2013. Among these is the parity for mass transit (including transit passes and vanpools) and parking benefits.
The IRS has issued the annual pension and fringe benefit plan cost-of-living adjustments (COLAs) for tax-year 2015. Employers must reprogram their computers and payroll systems with these amounts before the first payroll of 2015.
The IRS has issued Revenue Ruling 2014-32 (Rev. Rul.) providing guidance on the tax consequences of employer use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringe benefits to employees. The Rev. Rul. also discusses whether mandatory delivery charges employees incur when ordering vanpool vouchers are qualified transportation fringe benefits.
The IRS has announced the annual cost-of-living adjustments made to several employee benefits and taxable amounts, based on changes to the Consumer Price Index. These are the maximum amounts that may be excluded in 2015 from an employee's taxable income for specific benefits.
The IRS has issued special administrative procedures allowing employers to correct the retroactive increase in the maximum excludable amount for 2012 qualified transit benefits on fourth quarter Form 941 and Form W-2.
XpertHR has updated its payroll content to reflect 2013 inflation adjustments in amounts for excludable transportation fringe benefits, adoption assistance benefits, the standard deduction and personal exemption.
HR guidance on the benefits of providing commuter/transportation benefits.