The term “transportation benefit” is thrown around a lot in discussions of employee benefits and compensation but people often don’t fully understand what the transportation benefit is or how it can help them. Confusion about the transportation benefit is completely understandable too – who wants to slog through dense IRS documents to learn the ins and outs of the transportation benefit?
There are two types of transit benefits: subsidized and pre-tax. Regardless of which type you are looking to roll out at your company, the IRS limits the monthly transit benefit amount to $255 per employee.
A subsidized benefit is a huge boost for an employee’s overall compensation package. A company subsidizes the cost of an employee’s transit (or vanpool) commute by depositing money on that person’s SmarTrip card through their payroll company or the free regional SmartBenefits program. Let’s say an employee has a subsidized transit benefit and needs the full $255 every month for her commute (most people do not need this much however). That $255/month would equate to an additional $3,060 a year in overall compensation, BUT it would only cost the employer $1,724 to extend that benefit since they use pre-tax dollars to do so. That’s a lot of bang for your buck! Basically, the company doesn’t owe payroll taxes on that $3K+ employee benefit. This can be a key factor inattracting and retaining valuable employees.
The other version of the transit benefit is the pre-tax option. The pre-tax transit benefit allows employees to set aside a predetermined amount of their salaries each month, to be deposited on their SmarTrip cards for riding Metrorail, Metro/ART buses, MARC, VRE or vanpools throughout the region. While not as lucrative a benefit for employees, the pre-tax option still allows employees to save a lot on their annual taxes by allowing them to use pre-tax dollars for their commutes. An employee using the full $255/month pre-tax transit benefit will save $1,175 by the end of the year! Employers also save money through the pre-tax transit benefit – upwards of $400 per employee if that employee is using the full benefit amount. The pre-tax transit benefit is a win-win for everyone involved and should be considered part of a basic benefits and compensation package at any company in the Metro DC area. It is even more important to offer some form of transit benefit if your company is paying for employee parking in any way – not all employees want to or are able to commute with a car so why should they be penalized for commuting in a more sustainable way? Do the right thing and provide an equal benefit for transit if your company pays for parking.
If you are interested in learning more or if all this transit benefit jargon has given you a headache, email ATP (firstname.lastname@example.org) and we’ll be more than happy to help you navigate the riveting world of qualified transportation fringe benefits. It may not be the most exciting topic, but it’s certainly an important one that can really benefit your colleagues and company.