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Pre-Tax Transit Benefit
Employers Considering the Benefit
Employees are asking you about the pre-tax transit benefit, and you want to get more details. If you have not already reviewed our Frequently Asked Questions, we encourage you to do so. It contains answers to dozens of the most popular questions about pre-tax benefits.
Employers interested in providing the pre-tax transit benefit have options on how they administer the benefit. There are a number of programs available to provide the benefit. They have different names, some more recognizable than others. The programs are based on the same pre-tax regulations and guidelines. They all provide the pre-tax savings for using mass transit to commute.
Some of the programs offered in the New Jersey area:
- BusinessPass (NJ TRANSIT)
- Commuter Check, (Wired Commute/Edenred)
- eTRAC (Benefit Resource Inc.)
- TotalBen LLC
- TranBen Ltd.
- RideECO (Delaware Valley Regional Planning Commission)
Go to their websites and learn about their programs. In addition to these programs, payroll service companies, like ADP, offer a transit pre-tax benefit option. You may want to search the web for "commuter tax benefit" or "pre-tax transit benefit" to see if others have joined the list.
Things to Consider When Building a Pre-Tax Transit Program
Some of the things to consider when selecting which program to use:
- What will be provided (transit passes, vouchers, electronic cards)
- Location of worksite(s)
- Commuting needs of employees
- Fringe benefits offered
- Budget and resources
- How to administer the benefit
- Unique needs of the company
What Will Be Provided to Employees as Their Pre-Tax Transit Benefit?
The options of what you can give the employees for the transit benefit:
- Transit passes/tickets paid for by payroll deductions
- Transit vouchers equaling the payroll deductions
- Transit electronic benefit cards loaded with the payroll deductions
What you select will impact your next steps. Third-party programs offer a combination of the transit passes, vouchers and electronic cards. This is where the providers differ. Some offer:
- Vouchers and electronic cards
- Transit passes and electronic cards
- Electronic cards
- All three, vouchers, passes and electronic cards
- NJ TRANSIT offers the passes and tickets directly to employers.
You get to select what tools you use, offering flexibility to employers and employees.
Location of Worksite(s)
Where your worksite is located has a direct impact on which programs you will consider.
- If your company is located in areas served by multiple transit systems would want a program that serves them all: vouchers and electronic cards.
- If your company is in New Jersey with employees that use NJ TRANSIT trains, buses and/or light rail, the BusinessPass program would serve you well.
- Companies with locations throughout the country that want one standardized program covering all their locations, would select a provider that has a national product (vouchers and electronic cards).
Shop the programs, their products and fees. All third-party provider programs charge nominal fees for their services. NJ TRANSIT BusinessPass has neither administrative fees nor any shipping/handling fees. You are charged only the face-value of the passes/tickets ordered. NJ TRANSIT provides this service to help employers help their employees.
Commuting Needs of Employees
How your employees use transit to travel to work will add to your selection process. Identifying this information continues to guide you through the process. Employees in the New Jersey area may be traveling by:
- Bus, train, light rail on NJ TRANSIT
- Other transit systems serving NYC or Philadelphia (e.g. PATH, PATCO, etc.)
- Private bus carriers (e.g. Lakeland, DeCamp, Academy, Coach USA)
- Third-party Vanpool
Fringe Benefits Offered
You may want to keep the pre-tax transit benefit in-line with other benefits you offer your employees. If your company uses an outside vendor to provide other employee benefits (flexible spending accounts) and/or payroll services, consider using them for the transit benefit too! Some benefit providers have added the pre-tax transit benefit to their list of services.
Budget and Resources
Costs are the reality of business, especially in these financial times. Budgets drive a lot of our choices. The pre-tax benefit is a win-win situation; it will help you save money while adding an employee benefit. Employees save on income taxes by lowering taxable wages. Employers save on payroll costs. The more employees that opt for the benefit, the more an employer saves.
If you select a program by one of the third-party providers, their fees are low. The fees are less than the employers' savings. It also adds to your resources by having help in administering the benefit to employees.
The pre-tax transit benefit is very popular. The other options of the regulation are a transit subsidy or combination of subsidy/pre-tax. They are when the employer provides some money towards the employees' transit expense. The subsidy given is tax-free to the employee receiving it and tax-deductible for the employer providing it. The subsidy option is also capped at $255/month per employee.
If an employer decides to offer a combination benefit of the two options, a subsidy and pre-tax transit, it is also capped at the $255/month. All the options are under the same IRS Code, Section 132(f) Qualified Transportation Fringe.
How to Administer the Benefit
This is a major factor in selecting a provider for the benefit. Decide if you want to administer the program directly or prefer paying a vendor to do it for you. Both are good options, just different ways to do it.
Distribution of the passes, vouchers or electronic cards is the major difference between the programs. Employer programs administered within the company require passes, vouchers or cards to be given out to the employees. Some employers want this managed inside, others prefer to pay someone to do it for them. Third-party programs will do the distribution to the employees for you.
Unique Needs of the Company
Some companies have unique needs or situations that steer them to one style of program.
Consider this example. A company is relocating and wants their employees to make the move with them. Employers may opt to purchase the transit passes for the employees to the new location. The benefits of providing the monthly passes directly to the employees:
- Employees remain "whole" relating to the move and their new commute.
- Employees get their passes from the employer, associating the extra benefit with them.
- Employer writes one check for the entire purchase, simplifying the benefit.
- Transit expense is not part of compensation. Adding money to employees' paychecks increases taxes, vacation/sick and other fringe expenses. This keeps it separate from compensation and tax-free.
- Years after the move, if the transit subsidy were to go away, it is not tied to the employees' salary.
NJ TRANSIT has a Sales & Employer Services available to assist employers with understanding the benefit and BusinessPass program. They may be reached at 973-491-7288 or via email.