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Help your employees commute to work

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in Small Business Tax,Small Business Tax Deduction Strategies

The tax law enacted late in 2014—the Tax Increase Prevention Act of 2014 (TIPA)—gives away tax breaks with one hand and takes them away with the other.

Alert: Under TIPA, higher monthly allowances for employer-provided commuting benefits were retroactively preserved for 2014. But these extensions immediately expired again on Jan. 1, 2015.

If the higher benefits are eventually reauthorized for 2015, as expected, you don’t have to lift a finger. But if they’re not, payroll adjustments may be required.

Here’s a recap of the three main transportation fringe benefits currently available.

1.  Mass transit passes: An employer can provide transit passes (e.g., rail or bus) to employees as a tax-free fringe benefit. The maximum monthly amount for tax-free transit passes was $250 for 2014, but it is only $130 per month in 2015, unless Congress takes action to authorize a higher number.

2.  Vanpooling: Employees can also benefit from commuting in a company-owned “commuter highway vehicle.” To qualify, the vehicle must seat at least six adults (not counting the driver) and at least 80% of the mileage must be attributable to transporting the employees. Also, at least half of the seating capacity (not counting the driver) should be occupied during these trips. As with mass transit passes, the maximum tax-free monthly benefit for vanpooling falls from $250 in 2014 to only $130 in 2015, unless Congress takes action.  

Note: The combined tax-free benefits for mass transit passes and vanpooling can’t exceed the monthly limit.

3.  Parking fees: An employer can provide parking spaces to employees on or near its business premises or at or near a location from where the employee commutes to work via mass transit, carpooling or vanpooling (e.g., a train or bus station). But this doesn’t include parking spaces at or near an employee’s home. The maximum monthly tax-free limit on employer-provided parking for 2015 is $260, up from $250 in 2014.

Tip: Some states also provide tax breaks for employer-provided commuting benefits.

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