C o m m u t e r  C h o i c e

Commuter Choice Programs Save Money for Employers and Commuters
With Transportation Equity Act for the 21st Century (TEA-21), American taxpayers will spend over $200 billion on highways and transit over the next six years. But a provision of the new law will actually put some of that money back in their pockets. In addition to reauthorizing the transit and highway programs through 2003, TEA-21 changed the Internal Revenue code to loosen restrictions on employer-provided transit and vanpool benefits and make them more attractive to employers and employees.

Prior to TEA-21, employers could only provide transit or vanpool benefits in addition to (but not in lieu of) compensation. Under TEA-21 and the Taxpayer Relief Act of 1997, transit and vanpool qualified transportation fringe benefits can now be used as follows*:

Employers may give their employees up to $65 per month in benefits to commute to work by transit or by eligible vanpools. The employer pays for the benefit and receives an equivalent deduction from his business income taxes. Employees receive the benefit completely free of all payroll and income taxes, in addition to their current compensation.

Employers may permit their employees to set aside some of their pre-tax income to pay for transit or eligible vanpools. Employers do not pay for the benefit but permit employees to use some of their gross income to pay for commuting expenses, before taxes are computed, up to $65 per month. Employees save on payroll and income taxes on the amount of the benefit they purchase, since that amount is no longer treated or reported as taxable salary. Employers' payroll costs are reduced, since payroll taxes do not apply to the set aside amount since it is treated as a benefit.

Employers may share the cost of commuting with their employees. Employers can give their employees part of the commuting expense tax-free in addition to their compensation and allow the employees to set aside part of their gross income (in lieu of compensation) to pay the remaining amount, up to the total monthly limit of $65.

Employers may establish a parking cash out program whereby employees may choose to "cash out" the value of employer-provided parking, forego parking, and receive the taxable cash value of the parking or receive a tax-free transit or eligible vanpool benefit up to $65 per month. If the employee accepts cash instead of a tax-free transit or vanpool benefit (for example, choosing to carpool, walk, or bike to work), then the employee will have to pay payroll and income tax on the amount; the employer will incur payroll taxes on the cash value.

In Connecticut and New York, employers usually provide the transit and vanpool benefit with the use of TransitChek vouchers. According to TransitCenter, administrators of the TransitChek program, the new law gives employers greater flexibility in how they pay for the TransitChek benefit. "Even if a company can't afford to provide a new benefit in addition to what they're currently giving employees, the employees can now get the tax saving benefit of TransitChek through a pre-tax payroll deduction," said Larry Filler, Executive Director of TransitCenter. TransitCenter estimates that employees who earn $22,000 or $48,000 a year and set aside the maximum benefit of $780 can save $239 or $364 respectively in federal, state and local payroll taxes.

TransitCenter notes that over 7,000 companies in the New York metropolitan area currently provide TransitCheks to their employees. TransitCenter has developed a new "Pre-Tax TransitChek", which will be available to commuters through their employers. For more information, call TransitCenter at 1-800-331-CHEK.

TEA-21 also increased the limit on nontaxable transit and vanpool benefits from $65 to $100 per month beginning in 2002.

For additional information, and for information on the State of Connecticut's Commute Incentive Program (providing matching subsidies for employer-purchased TransitCheks) call your MetroPool Program Manager at 1-203-324-6700.*source: Federal Transit Administration.