If all or part of your workforce is once again commuting to the office, they may be looking to save on mass transit expenses. In the past, certain transportation costs were tax-free to employees and deductible by employers, within certain monthly limits — until the Tax Cuts and Jobs Act (TCJA) eliminated the deduction for employers and established other special rules for tax-exempt organizations.
But your company may continue to offer this perk — clearly a plus to incentivize those who’ve been working from home during the pandemic — if you follow the new rules.
Transportation benefits may be provided tax-free, as long as they don’t exceed the current IRS limit of $280 per month. Check out the three main types of transportation benefits that apply:
- Mass transit passes. According to the IRS, this includes any pass, token, fare card, voucher or similar item. The pass must entitle someone to ride free of charge or at a reduced rate on mass transit or in a professionally driven vehicle seating at least six adult passengers. Mass transit may be operated publicly or privately by bus, rail or ferry.
- Commuter highway vehicle expenses. A commuter highway vehicle seats at least six adult passengers. At least 80% of the vehicle mileage should be for transporting employees between their home and workplace, and employees must occupy at least 50% of the vehicle’s seats. A tax-free arrangement may also involve several forms of vanpooling. For example, your company might purchase or lease vans so employees can commute together to work. Or you might contract with a third party to provide the vehicles and pay some or all of the operating costs.
- Qualified parking fees. This benefit allows employer-provided parking for employees on or near the business premises. It also covers fees for parking on or near the location from which employees commute to work using mass transit, commuter highway vehicles or carpools (for example, at the parking lot of a train station). However, the benefit doesn’t extend to parking at or near an employee’s home.
Put the pedal to the metal
Aside from the three main transportation benefits, employers may offer reimbursements to employees who commute via bicycle. Under the TCJA, you can continue to deduct reimbursements of qualified bicycle expenses as business expenses, but the tax exclusion for employees has been eliminated.
Check in with the tax experts
Whether you’ve been offering transportation benefits for years, or are just now introducing them, be sure to consider both the tax and non-tax implications they entail. Be sure to consult with your tax or benefits advisor for advice specific to your company’s needs and circumstances.
Don’t have an advisor? Reach out to the NJ CPAs at Magone & Co — we’re here to help.