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07 / 14 / 2015 by Greg Freyman, CPA in Business Tax

How Commuter Benefit Programs Lower Taxes

Commuter passes are generally an IRC Section 132(f) fringe benefit. This means that they’re treated as a pre-tax contribution and excluded from income on the W-2 Form. These commuter programs can provide a great tax saving benefit to both the employee and the employer. If your company is interested in learning how commuter benefit programs work, there are a few points to keep in mind.

First, you’ll need to determine if the program will be administered internally or through a third-party. Generally speaking, internal administration may make the most sense for small employers with only one location. If you have a medium to large company with many staff members that would like to participate in the plan, then you should consider commuter benefit providers or third-party benefits administrators that also provide flexible spending accounts.

Second, we recommend that you have a “taking stock” meeting with all of the the key departments and appropriate managers that will be involved in setting up such a plan. Team members generally should include human resources, payroll, accounting, legal and other relevant staff personnel.

Third, determine what commuter benefits will be provided by the employer and to whom. This may include subsidizing parking costs, transit fares and tolls as well as eligible bicycle commuting expenses. If employees do in fact use pre-tax income to cover these expenses, establish a deduction code for the benefit such as IRC 132. Usually, they’re reported as an informational item on the W-2 form in Box 14 with a Code IRC 132.

Fourth, make sure to update the company personnel policy handbook to include a description of the program and the company’s involvement. Be sure to include information related to how to enroll and participate and any other guidelines particular to your company.

Lastly, market the commuter benefit program to employees through new employee orientations, intranet, benefits fairs, and other internal office materials so that it is being utilized.

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