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.

Save on Commuting Expenses

How the Program Works:
The IRS sets an annual cap on the amount of commutation costs that can be tax deductible for those commuting by vanpool or public transit. For 2015, the cap is set at $130 monthly and is excluded from the following payroll taxes:

  • Employee—Federal Income Tax, Social Security and Medicare payroll Taxes
  • Employer—Matching share of Social Security and Medicare Taxes
Additional Commuter Tax Benefits:
  • An employee who pays to park at a qualified parking area, such as a train station, and then takes public transit or a vanpool to work can receive a combination of the transit benefit and parking benefit up to $380 per month.
  • The IRS permits employers to reimburse employees up to $20 per month for reasonable expenses related to commuting by bicycle.
Commuter Tax Benefit Program Example*
  • Employee’s public transit commutation cost is $130 per month which is IRS cap
  • Employee in 25% tax bracket
  • Social Security and Medicare tax rate is 7.65% for both employee and employer.

Tax Savings for Employee: $509 per year ($390 saved in Federal Taxes + $119 saved in Social Security and Medicare taxes). Tax Savings for Employer per participating employee: $119 per year (employer’s portion of Social Security and Medicare taxes.) *Calculations based on 2015 allowance assumptions

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. Click here.