Wednesday March 9th, 2016
About 2.7 million U.S. workers receive pre-tax commuter benefits from their employers through an IRS Section 132 plan. At the federal level, legislation passed in late 2015 that established equal tax-free limits for transit passes, van-pool benefits and parking benefits, retroactive to January 1, 2015. The transit and van-pool benefit was previously set at $130 a month, but the new law increases the benefit to $255 a month in 2016, equal to the maximum tax-free amount allowable for employer-provided parking.
The downside to this benefit is that it is only available to those whose employers offer it. While it is common for large employers to offer this benefit to employees, small employers are less likely to do so. But some cities are changing this by requiring employers to offer their employees pre-tax commuter benefits.
Three major U.S. cities—San Francisco, New York City, and Washington, D.C.—currently have laws requiring employers to provide employees with commuter benefits.
San Francisco’s transit benefit ordinance has been in effect since 2009 but the law was recently changed. Effective September 30, 2014, employers with at least 50 full-time employees in nine Bay Area counties must offer commuter benefits to employees under one of the following programs: a pre-tax benefit, an employer-provided subsidy, an employer-provided transit or alternative commuter benefit, or a more generous benefit. The program was developed based on the idea that providing employees with this benefit is a financial incentive for both employers and employees—employers reduce their payroll taxes and employees contribute to their commuting costs using pre-tax income.
New York City's Commuter Benefits Law went into effect on January 1, 2016, and it requires for-profit and non-profit employers with 20 or more full-time non-union employees to offer the option to use pre-tax income to purchase qualified transportation fringe benefits. This law applies to full-time employees. Before it came into effect, 700,000 NYC-based employees received commuter benefits. It’s estimated that an additional 450,000 employees will benefit from this tax break, according to the city government.
The District of Columbia’s Commuter Benefits Law also became effective on January 1. Here, the law requires certain employers to offer a transportation benefit program that provides commuter benefits for employees. Covered employers must provide at least one of the following transportation benefit programs to employees: a pre-tax fringe benefit; employer-paid transit benefits or equal reimbursements of vanpool or bicycling costs; or employer-provided transportation via vanpool or bus offered at no cost to employees.
Beyond the environmental reasons to provide commuting options, proponents of mandating employer-provided commuting benefits tout their cost savings for employers and employees and their value as a recruitment and retention tool. An employee’s commute to work can be stressful, so by providing employees with options as to how they can pay for the commute to work, employers can play a role in reducing employee stress.