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Green light tax-free commuting perks for employees

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in Employee Benefits Program,Human Resources

The new economic stimulus law almost doubles the amounts employees may receive for some tax-free transportation benefits. Initially, employees were eligible to receive transit passes and van pooling benefits valued up to $120 per month for 2009 without owing any federal income tax.

The new law increases the monthly tax-free benefit to $230 starting March 1. This tax break is extended through 2010 (with a possible inflation adjustment in 2010).

Strategy: Launch programs rewarding employees for commuting by mass transit or other energy-saving means. Here’s a quick rundown on the transportation fringe benefits currently available.

Mass transit passes: An employer may encourage employees to use mass transit instead by providing monthly transit passes as a tax-free fringe benefit. Example: Your company can authorize salary reduction payments on a pre-tax basis
—similar to employee contributions to a 401(k) plan—or pay the tab itself.

Van pooling: Another tax-law provision allows you to set up a program for transporting employees to and from work 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. Furthermore, at least half of the seating capacity (not counting the driver) should be occupied during these trips.

The maximum tax-free monthly benefit for van pooling in 2009 was set at $120 per month for each employee. Beginning March 1, 2009, this amount also jumps to $230 per month, extending through 2010 (with a possible inflation adjustment in 2010).

Note: The combined tax-free benefits for mass transit passes and van pooling can’t exceed the monthly limit. Thus, if your company provides an employee with a total of $300 in mass transit passes and/or van pooling in April 2009, he or
she is taxed on $70 of the benefits ($300 – $230 maximum).

Parking fees:
An employer also 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, car pooling or van pooling (e.g., a train or bus station).

The tax-free benefit for parking fees is also $230 per month for 2009 (with a possible inflation adjustment for 2010). Therefore, the new law changes put the other transportation benefits on the same level as this perk.

Note: The tax-free benefit for parking fees may be provided in addition to benefits available for mass transit and/or van pooling. So the maximum combined tax-free transportation benefit beginning March 1 is a total of $460 per month.

Bicycle commuting:
For tax years beginning after 2008, you can pay employees up to $20 per month tax-free for commuting by bicycle. However, if an employee takes advantage of this tax break, he or she can’t receive any of the other tax-free transportation benefits. 

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