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Commuter Benefits

Updated: Jun 22, 2023

Many large urban areas require businesses within their jurisdiction to offer commuter benefits to their employees.


Examples of cities that require commuter benefits include New York City, Washington, DC, San Francisco, and Seattle. Even if not required in your area, offering a commuter benefit to your employees can make a meaningful difference in your team’s quality of life, improve productivity, and potentially guard against tardiness and absenteeism.



Commuter benefits programs don’t just spare the air, they can provide tax savings to the company, and the time & cost savings to the employee may provide an advantage over other offers when closing talented candidates. Below we’ll provide an overview of how commuter benefits programs work, tax and compliance considerations of different benefit structures, and how to implement a commuter benefit at your worksite.


What are commuter benefits?


Commuter benefits are employer-sponsored programs that reduce the employee’s out-of-pocket commuting costs. Commuter benefit programs can come in a few forms, including:

  • Pre-tax deductions for commuting expenses like transit passes or tolls

  • Employer-paid transit or vanpool passes

  • Employer-run shuttles

  • Stipends or reimbursement programs

  • Carpool incentives

  • Remote work programs

Tax and compliance considerations for commuter benefits


The tax treatment and compliance requirements for commuter benefits depend on the type of benefit you offer. Here's a brief overview:


  • 🏦 Pre-tax deductions: If you offer pre-tax deductions for commuting expenses, those deductions are not subject to federal income tax, Social Security tax, or Medicare tax, saving the employer on their share of those taxes. As with other pre-tax deductions like 401(k)s, FSAs, and HSAs, the IRS puts limits on the amount you can contribute to pre-tax commuter benefits programs. In 2023 the monthly limit is $300.

  • 🚍 Employer-paid passes or shuttles: If the employer elects to fund transit passes or run their own shuttles, the entire cost can be written off as a business expense to decrease overall tax liability. If a reimbursement system is used (vs. the employer purchasing the passes directly), taxes should not be deducted from the reimbursement. Companies that operate their own shuttle system can also defray the program’s cost by allowing non-employees to purchase passes. For example, in the San Francisco Bay Area, large firms like Google, Facebook, and Genentech operate shuttles that make it easier to recruit talent from around the traffic-choked Bay Area. The shuttles allow employees to continue to work during their commutes and form bonds with colleagues they may not normally interact with. Meanwhile, local tax incentives reward these companies for reducing the traffic burden and non-employee passengers reduce the overall cost of the program.

  • 💰 Stipends: Depending on the transportation infrastructure in your area, commuting stipends might make the most sense. The benefit of stipends is that they are not regulated and therefore have the most flexibility in how they’re used. For example, while pre-tax commuter programs only cover public transportation systems like subways, busses, and ferries, stipends can be used for gas, parking, bicycle parts, scooter rentals, walking shoes, even horseshoes if that’s how your employees get to work. Although stipends are taxable and therefore have less purchasing power, they still save employees money and are deductible business expenses for the employer.

  • 🛋️ Remote work: Offering remote or hybrid working arrangements may not offer tax benefits, but companies can see a tremendous benefit in their overall operating costs with an open-minded approach to remote work. Not only are many workers attracted to opportunities that offer the flexibility to work from home, but letting them do so can also reduce the cost of maintaining facilities from office-provided lunches and snacks, using less water and electricity, and potentially delaying the time before a business needs to upgrade their offices. Keep in mind that if you hire employees from other states, you will need to set up a nexus of business in that state or hire them through an employer of record (EOR). Although both of these arrangements come at an extra cost, the long-term benefits of a remote or hybrid business can still outweigh the costs in many cases.


Implementing and maintaining a compliant commuter benefit program


If you decide to offer commuter benefits, here are some best practices for implementation and compliance:

  1. 🗳️ Survey your team to find out how they get to work, and what benefits they are most likely to use.

  2. 💵 Factor in the tax savings, productivity benefits, recruiting benefits, and advantages relative to the company’s long-term strategic goals when determining your budget.

  3. 🛒 Shop around. There is a wide range of quality among providers who offer commuter benefits. For example, my experience is that Basic is a dumpster fire of a company that makes frequent errors and whose customer service system is a black hole. Check customer reviews and back channel references before committing to a provider.

  4. 😌 Sort out a low-friction way to incorporate pre-tax deductions, reimbursements, or stipends into your payroll processes.

  5. ❣️ Promote the program, and educate employees about the benefits, how to enroll, and any unintuitive requirements of the program. Focus the messaging on the convenience, savings, and quality of life improvements for the employees, not the benefits to the company.

  6. 🗃️ Keep accurate records of enrollments and benefit payments so that you can claim the deduction on your tax return. Records may also be required for compliance purposes.


Conclusion


Even if not required by law, offering a commuter benefit can be a great addition to your company’s benefits package. Reducing commuting costs and inconvenience can give your organization an edge when closing competitive candidates. Current employees are more likely to stay if their commute isn’t a drag on their work-life balance or cost of living. Employers will see gains in productivity and cohesion, and reductions in operating costs and absenteeism.


Want to learn more about getting the most out of your benefits package? Check out these related articles:

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