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Financial Planning > Tax Planning

Keeping American Employees Moving

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Soaring gas prices are straining family budgets and prompting many workers in the United States to reconsider how they conduct their daily commute, which averages more than 100 hours per year. More workers are eschewing their solo drive and are instead carpooling or traveling to and from work on buses, trains and subways.

Fortunately, there is a cost-effective way for organizations to help ease the out-of-pocket expense for their commuting workforce: Set up commuter benefit plans that qualify for federal tax breaks.

Since the beginning of 2005, benefit providers have seen a modest increase in demand for commuter benefits, but penetration of commuter benefit plans is still relatively low.

According to a recent survey by the Society of Human Resources Management, Alexandria, Va., only 14% of reporting companies offered a qualified transportation expense plan or transit subsidy. But my company has found that nearly 80% of current commuter benefit plan enrollees say the benefits are “very important.”

Commuter benefits frequently are used in major cities by commuters who take mass transit or use vanpools.

Section 132 of the Internal Revenue Code gave birth to qualified commuter plans by letting workers set aside pretax dollars for work-related parking and mass transit expenses. The pretax dollars are exempt from federal income taxes, Social Security taxes and, in most cases, state income taxes. Depending on the employee’s tax bracket, tax savings can amount to 22% to 38% of the employee’s commuter plan contribution.

Because the employer does not pay FICA tax on the money their employees set aside, companies see positive financial returns–fast. Offering commuter assistance programs also can help employers in major cities overcome fears of job candidates that getting to work will be too difficult.

Outsourcing can make administering the pretax deduction program easy. Parking expenses incurred are managed through a pretax reimbursement account. Expenses incurred for mass transportation are managed by providing employees the ability to order vouchers or fare media from local transportation authorities with pretax dollars.

A vanpooling arrangement that involves 6 or more passengers, excluding the driver, is another commuting setup that is eligible for reimbursement under some commuter benefit programs.

Jim Corcoran is a senior vice president at Ceridian Corp., Minneapolis, a human resources outsourcing firm.


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