COMMUTER TAX BENEFITS PROGRAM
Commuting to work can be expensive. Those employees using commuting by vanpool or public transit may be eligible for a significant tax savings on their commuting costs through the Commuter Tax Benefits Program. Employers benefit too, by saving money on payroll taxes. The IRS permits employers to assist employees who vanpool or use public transit, as follows:
- By setting up a pre-tax payroll deduction system for commuting costs; reduces tax payments for employee and employer (most popular amongst employers)
- By contributing directly to the cost of the employees’ commute; tax free for employee and tax deductible for employer
- A combination of the above.
The Commuter Tax Benefit Program is available through most payroll companies and is easy to set-up in-house if a private payroll company is not used. Cross County Connection can provide assistance in setting up the program. Cross County Connection will also market the program to employees and assist with the enrollment process.
UPDATE: For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022. Details Click Here.
Commuter Tax Benefits
Save up to $900 on Your Commute
The Federal Government allows employees to set aside a certain portion of pre-tax wages, which can be used for your mass transit commuting costs and parking while reducing your federal taxable income. The Federal Government currently allows a pre-tax commuter benefit of $280 per month. That means you could save up to $900/year by not paying federal income tax on that salary.
Governor Phil Murphy signed a bill into law requiring New Jersey employers of at least 20 employees to offer a pre-tax transportation fringe benefit to employees (who are not currently in a collective bargaining agreement) beginning March 1, 2020.
Save Even More on Parking
If you need to pay for parking in order to make your transit connection, the parking fees can be funded with pre-tax dollars up to an additional $280 per month.
What Do You Need to Do?
Check with your employer to see if they already offer a commuter tax benefit. You may want to start with the Benefits Department, your Payroll contact or Human Resources Department. They will help you figure out if the benefit is already offered to employees. Keep in mind: the only way to access pre-tax salary is through your employer. Once you take home your paycheck, you have paid income tax on that salary. The pre-tax transit benefit is not a year-end deduction; it consists of payroll deductions throughout the year.
What Do Employers Need to Do?
To take advantage of these tax savings, your employer needs to opt-in to either the NJ TRANSIT Bulk Sales program or one of the programs offered by a third party provider, like Beniversal/eTRAC, Commuter Benefit Solutions, RideECO (Delaware Valley Regional Planning Commission), TotalBen, TranBen, or TransitChek by WageWorks. In addition to these programs, payroll service companies like ADP, offer a transit pre-tax benefit option. A common name for the benefit is “commuter tax benefit”.
TaxFree commuter benefits can be structured as an employee-funded tax-free payroll deduction; as an employer-funded benefit; or the costs can be shared by employer and employee. The benefit can be delivered in the form of transit provider-specific passes or universally accepted vouchers and debit cards.
Let NJ TRANSIT help you through the process and provide the information you need to explore the options, programs and benefits of pre-tax transit. Contact the NJ TRANSIT Bulk Sales program at 973-491-7288, or contact any of our partner providers listed above.
Employers see what NJ TRANSIT is doing to ensure your employees can get back to the office.
See more at the NJ TRANSIT tax benefits center. Click here.