Commuter Benefits: An FAQ With All the Right Answers

December 4, 2023
Commuter Benefits: An FAQ With All the Right Answers

Even with the remote work revolution, plenty of people still travel daily to a job site or office. With transportation prices continuing to rise, commuter benefits are always welcomed.

This article explains commuter benefits and how employees can use them along with answers to common questions about this valuable job perk.

What are commuter benefits?

Commuter benefits are a simple way for both employers and employees to save money. Put in place to encourage the use of public transportation, these programs allow employers and employees to use pre-tax dollars to pay for a variety of commuting expenses.

How does it work?

For employers and employees, benefits that qualify as transportation fringe benefits are not a part of an employee’s taxable wages. These commuter benefits are exempt from federal income and payroll taxes.

Under federal law, qualified transportation fringe benefits consist of:

  • Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee’s residence and place of work.
  • Transit passes.
  • Qualified parking benefits.

The Internal Revenue Service (IRS) set the 2024 federal monthly maximum for qualified transportation fringe benefits at $315 per month for commuter highway vehicle transportation and transit passes and $315 per month for qualified parking.

Employees can set aside pre-tax income for commuter benefits up to the federal maximum.

Depending on how an employer offers transportation benefits, funds can be delivered to and used by employees in numerous ways:

  • Employer or employer-selected provider buys passes, fare cards, vouchers, or tokens and distributes them to employees.
  • Employer or employer-selected provider issues debit cards and online accounts that employees can use for public transit and parking.
  • Employer or employer-selected provider deposits funds on smart cards like San Francisco’s Clipper Card and Boston's CharlieCard.

NOTE: Employers may also be eligible for state income and payroll tax incentives for commuter benefits. Some cities even require employers to provide commuter benefits for their employees under the law.

Frequently asked questions about commuter benefits

Since understanding every facet of a work benefit is essential to getting the most out of it, we’ve compiled an FAQ that covers the most important aspects.

Can employees pay for parking with their commuter benefits funds?

Employees can generally use commuter benefits funds to pay for parking their personal vehicles on or near their employer’s business premises.

Eligible parking expenses can include parking meters, fees at mass transit facilities, and commuter highway vehicles.

Can employees use commuter benefits funds for airfare?

Airfares aren't typically recognized as eligible expenses under this job benefit.

Can employees use commuter benefits funds to pay for taxi fares?

Employees can’t use commuter benefits funds to take a taxi. However, some employers allow commuter benefits funds to pay for Lyft Shared and Uber Pool rides.

Can employees use commuter benefits funds to pay for tolls or E-ZPass?

Generally, employees can’t use commuter benefits funds to pay for tunnel, bridge or highway tolls (E-ZPass).

Can employees use their commuter benefits funds to pay for business travel expenses?

Generally, no. Commuter benefits are most often used only for travel between home and work—not for expenses related to traveling from an office to another business or client meeting.

Can employees pay for transit expenses with their commuter benefits funds?

Employees can usually use their commuter benefits funds to pay for passes, tokens, fare cards, vouchers, or similar items for their own transportation on mass transit. Mass transit can include buses, trains and ferries.

Can employees use their commuter benefits funds to pay for gas?

Employees usually can’t use commuter benefits funds to pay for fuel, mileage or other costs related to their vehicle.

How can employees get reimbursed for out-of-pocket commuter benefits expenses?

If an employee paid for an expense that’s covered by their commuter benefits, they can submit a claim to their commuter benefits administrator for cash reimbursement. A couple of examples of this would be if their card was declined at a parking meter or station, or if they accidentally left their card at home.

What is a commuter highway vehicle?

A commuter highway vehicle is any vehicle with a seating capacity of at least six adults, not including the driver.

A vehicle can qualify as a commuter highway vehicle if it's used 80% of the time for transporting employees between their homes and work and if the number of employees it transports for such purposes is, on average, at least half of its adult seating capacity.

How do I enroll in commuter benefits?

If you’re an employee:

Employees can enroll if their company has a commuter program. Ask your HR department for details.

If you’re an employer:

Employers have potential options for taking advantage of pre-tax commuter benefits, based on their preferred levels of contribution and involvement. Depending on your location, you can:

  • Contribute to your employees’ commuter benefits.
  • Have employees deduct commuter funds from their pay and purchase passes themselves.
  • Offer a combination of the two.

Setting up commuter benefits yourself can be time-consuming. If you’re doing it alone, think about whether you have time for setup and administration or if you’d rather use an outside service to manage it.

What happens to an employee’s commuter benefits account balance if they’re terminated?

On the day the employee is let go:

  • The employee’s commuter benefits card is deactivated.
  • The employee’s commuter benefits plan ends.
  • All unused funds are returned to the employer. However, a terminated employee can still file reimbursement claims.

How do I file reimbursement claims if I'm terminated?

Once an employee has been terminated, they have up to 90 days from their termination date to submit any expense claims.

  • Only expenses that occurred before the employee’s termination date can be claimed.
  • Expenses can’t be older than 180 days from the date of the claim submission.
  • Due to compliance regulations, unused commuter benefit funds can’t be refunded.

Why provide commuter benefits?

There really is no downside to offering a commuter benefits program. In addition to reducing your company's carbon footprint, they lower the taxes of your employees and lower your payroll taxes. These programs are legally required in some locations. For example, you must offer commuter benefits if you’re an employer:

  • In the San Francisco Bay Area with 50 or more full-time (at least 20 hours per week) employees.
  • In Berkeley, California, with 10 or more employees who work at least 10 hours per week.
  • In New York City with 20 or more full-time (at least 30 hours per week) employees.
  • In Washington D.C. with 20 or more total employees.

What if my company is outside these locations?

Companies and employees everywhere can reap the rewards of a pre-tax commuter benefits program.

While most states follow federal law, a handful of states treat commuter benefits a little differently for state income tax purposes. For instance:

  • In Washington, employers can claim a tax credit of up to 50%, in addition to saving on state payroll taxes. Minnesota offers employer tax credits of 30%.
  • In Massachusetts, the monthly exclusion amounts are $300 for employer-provided parking and $300 for combined transit pass and commuter highway vehicle transportation benefits.
  • In Connecticut, they can save 40% on their commuting expenses.

Enjoy the savings of commuter benefits

Employers and employees can use commuter benefits to their advantage. Paying with tax free dollars helps save money and reduce overall transportation costs.

TriNet helps organizations like yours offer commuter benefits alongside other benefits accounts like FSAs (flexible spending accounts). Let's connect to talk about how easy it can be to add commuter benefits to your employee benefits package.

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