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.
So your company can provide up to $520 in monthly tax-free benefits per employee in 2018. This includes $260 parking, plus $260 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%-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 tax break. Employers can also provide bicycle commuters a transportation fringe benefit. The exclusion amount is $20 a month.
Under the tax law, there are three categories of employer-provided fringe benefits for qualified transportation for 2018:
1. Pubic transit passes for light rail, bus, subway or ferry worth up to $260 a month in 2018 (up from $255 in 2017).
2. Van pool rides, also $260 a month ($255 in 2017).
3. Parking expenses, worth up to $260 a month ($255 in 2017). 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.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.