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What is Commuter Choice?
Commuter Choice can be broadly defined as any one or series of options an employer offers an employee as an
incentive for not driving alone to work. Because of changes to the Internal Revenue Service Code {26 USC 132 (f)}
made through TEA-21 (the current Federal Transportation Funding Act passed in
1998), several of these options can provide bona fide cash savings to the employer and employee. In
other words, it is an inexpensive fringe benefit of employment.
What are the cash savings options?
- Employers may cover the full cost of a transit pass or vanpool membership as a taxable fringe benefit. The Federal limit that qualifies for a business expense is
$100 per employee per month
(pe/pm).
- Employers may allow employees to use pre-tax income to purchase a transit pass or voucher. Again, the Federal limit is
$100 pe/pm. Employees pay no federal or FICA tax, and depending on the state, those taxes are not calculated. Employers pay no FICA.
- Share the fare. The combined limit is still $100 pe/pm.
- "Cash-out" the parking space (also known as
"pay-me-not-to-drive"). If an employee gives up an employer-paid parking space, the employer may opt to pay the cost of the space as taxable income to the employee up to $175 per month. An employer federal tax exemption up to this limit still applies.
Why would I seek or offer these options?
Commuter Choice is business savvy. For workers who rely heavily on transit to get to work, everyone can save
money with Commuter Choice. In a tight labor market, a comprehensive Commuter Choice benefit package can be
the competitive edge in attracting and retaining employees. Commuter Choice can free up valued parking spaces
downtown by giving employees the "pay-me-not-to-drive" option. When fewer employees drive solo to work the less
congestion you and they are likely to experience.
Commuter Choice is good for employees. Entry level workers, who spend the greatest percentage of their salary
getting to and from work, will see their take home pay increase, after taxes. Other employees can save or even make
more money, simply by getting out of their solo driving routine and using Commuter Choice. The frustration and
stress of driving in rush hour traffic can be diminished making employees more productive during working hours. Add
a guaranteed ride home and the anxiety of getting home in an emergency evaporates.
Commuter Choice is good for the environment. Reducing the number of vehicle miles traveled can reduce the
volume of greenhouse gas and other emissions that we put into the atmosphere. That reduction can improve health
conditions for those prone to asthma and other respiratory ailments which can mean a reduction in sick time.
My employees want to telework. I dont see any "bona fide cash savings" there.
There are currently no direct savings related to telework, however, if your employee currently drives to work and the
telework arrangement is an agreeable one, pay them not to drive! You can take a tax deduction on the cost you pay
for their parking space. In many cases, there are creative ways to make the Commuter Choice incentives work for
your employees.
Is this an administrative nightmare?
Not at all. Commuter Choice benefits are not subject to the Internal Revenue Service flexible spending account or
cafeteria plans (Section 125 of IRC), so paperwork is kept to a bare minimum. Additionally there is a growing service
industry dedicated to coordinating all the administrative details in establishing a Commuter Choice benefit program
locally or nationally. Below are some websites for additional information.
This is the first Ive heard about Commuter Choice. Why dont more people know about it? What can I do to
help?
Commuter Choice can only become effective if people are aware of it and are able to take advantage of the benefit.
If its not available in your workplace, ask your employer to explore and offer Commuter Choice benefit options they are as right for business as they are for the environment.
Ask state and local government to offer Commuter Choice to their employees. State enhancements to the
federal incentives can be enacted as a way to grow smarter economic development. Public/private, business
and environmental partnerships demonstrate the practical benefits to Commuter Choice.
Examine your own commute and work options telecommuting, flexible work schedules, carpooling, walking
or biking to work or transit - all are environmentally sound options to driving alone to work.
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