Q and A

Transit Benefit Programs:Questions & Answers

The Transportation Equity Act for the 21st Century can save companies time and money. Whether its deductions from business income taxes or reduced payroll expenses, there are many possibilities to save your company money with a Transit Benefit Program.

Under Section 132 (f) of the Internal Revenue Code, an employer can provide up to $100 per month, $1200 a year, to those employees who commute by transit or vanpool and qualified parking expenses up to $175 a month, $2,100 a year. The employer can deduct these costs as business expenses and the employees do not report the subsidy as income for tax purposes.

Here are some frequently asked questions about programs and answers to help your company incorporate a Transit Benefit Program at the worksite.

1. What is a transit benefit program?
2. What types of transit services qualify for the Transportation Commute Benefit?
3. What various vanpool arrangements qualify for the Transportation Commute Benefit?
4. To whom and for what purposes may the qualified transit benefit be offered?
5. Can an employer provide the parking benefit in addition to the commuter highway vehicle benefit to employees who travel in vanpools that use commercial parking?
6. What are the employer's record keeping requirements of the Transportation Commute Benefit?

1: What is a transit benefit program?
A: It is a provision of the Internal Revenue Code (IRC) Section 132 (f) that permits an employer to subsidize his/her employees' cost of commuting to work by transit. It also allows employees to use pretax dollars to pay for their transit passes.

2: What types of transit services qualify for the Transportation Commute Benefit?
A. Any type of transit service, publicly or privately owned or operated including bus, rail, subway, ferry, subscription bus, shuttle bus and commuter highway vehicles undercontract which provides to the public and/or employees, general or special service on a regular and continuing basis.

3: What various vanpool arrangements qualify for the Transportation Commute Benefit?
A: Tansportation in a commuter highway vehicle (vanpool) which is provided "by and for" the employer is eligible for the Transportation Commute Benefit. These types of vanpool arrangements are: employer-owned, employer-leased, employee-owned, employee-leased, and public transit operated.

4: To whom and for what purposes may the qualified transit benefit be offered?
A: An employer can offer the benefit to any employee or group of employees within the workforce. The amount can vary among employees, it can be provided on a regular basis or once a year instead of a bonus, or it can be provided as a recruitment or an incentive payment to address a problem such as recurring lateness. It can also be used only for a limited group of employees or available to all employees, at the employer's discretion.

5: Can an employer provide the parking benefit in addition to the commuter highway vehicle benefit to employees who travel in vanpools that use commercial parking?
A: The designated employee "prime member" (often the driver or the person assigned the parking space) who travels in a commuter highway vehicle that uses commercial parking is eligible for the parking benefit (up to $175/month) while at the same time is entitled to the commuter highway vehicle benefit (up to $100/month). All other employees commuting in a highway vehicle which are not the "prime member" are only eligible for the vanpool benefit, not the parking benefit. Only one person can receive the parking benefit.

6: What are the employer's record keeping requirements of the Transportation Commute Benefit?
A: In the case of cash reimbursements, a bona-fide reimbursement arrangement constitutes adequate record keeping. In the case of a voucher system used for transit or vanpools, employeers need only maintain a record of the purchase of the vouchers. In all other cases, the employer must maintain adequate records which reasonably demonstrates expenditures under the benefit. As an example, in the case of an employer who participates in a transit pass program by selling passes of a local transit provider at a discount, the employer should keep records of the pass sales to employees in addition to the arrangement with the transit provider.