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Cut back on employee tax perks for transportation

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in Compensation and Benefits,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

The cost of practically everything keeps going up, but not the amount of tax-free transportation benefits for employees.

Strategy: Adjust your company’s benefits program for 2012. Because Congress failed to extend a group of tax breaks beyond 2011, certain tax-free benefits have been virtually cut in half.

Here’s a recap of the transportation fringe benefits that are currently available in the workplace.

•    Mass transit passes: An employer may encourage employees to use mass transit instead of commuting to work by car by providing monthly transit passes as a tax-free fringe benefit. The maximum monthly benefit for 2012 is $125 (down from $230 a month in 2011).

•    Vanpooling: Employees may 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 $230 to $125.  

Note: The combined tax-free benefits for mass transit passes and vanpooling can’t exceed the monthly limit. Thus, if your company provides an employee with a total of $200 a month in mass transit passes and vanpooling, he or she is taxed on $900 of the benefits ($200 − $125 maximum x 12 months).

•    Parking fees: An employer may 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.

Unlike mass transit passes and vanpooling, the monthly tax-free benefit for parking fees is going up in 2012—from $230 to $240.

•    Bicycle commuting: For 2012, you can pay employees up to $20 per month tax-free for commuting by bicycle, but they can’t receive any other tax-free transportation benefits.

Tip: Some states also provide tax benefits for commuting. Check into the applicable laws.

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