Commuting can be a nightmare for employees. Your company can help by offering your staff members some financial relief from their commuting hassles.
Employees appreciate this benefit and there’s a bonus for your company: You can save money on payroll taxes. Similar to a cafeteria plan election, staff members can have money deducted on a pre-tax basis to be applied toward the transportation benefits. Both the company and the employee avoid payroll taxes on the salary reduction.
In another option, employees can be given the choice of taking the benefit in cash. However, if an employee takes cash, the amount is included in the employee’s compensation and subject to employment taxes.
Under the tax law, there are three categories of employer-provided fringe benefits for qualified transportation for 2014:
1. Public transit passes for light rail, bus, subway or ferry, worth up to $130 a month. Van pool rides, also $130 a month.
2. Parking expenses, worth up to $250 a month. The parking space must be on, near your business location, or at a location where staff members leave their cars and then commute to work by public transportation or car pool.
3. So your company can provide up to $380 in monthly tax-free benefits per employee in 2014. This includes $250 parking, plus $130 in passes or rides. If you give more, the excess must be treated as taxable compensation.
Some limitations: Shareholder-employees of C corporations can collect qualified transportation perks but they’re not available as a tax-free fringe benefit to partners, 2-percent-or-more shareholder-employees in an S corporation or independent contractors. Talk with your tax adviser about the best way to set up a program.
Bicycle commuters get a new tax break: Employers can also provide bicycle commuters a transportation fringe benefit. The exclusion amount is $20 a month.
If you have any questions regarding this or any other tax saving opportunities for your business please contact your MKS&H tax advisor.