Commuter benefits are structured as a monthly benefit. Unlike many other tax-favored benefit plans which are structured as annual plans.
- The maximum tax-free election for qualified mass transit, as set by the IRS, is $260/month in 2018.
- The maximum tax-free election for qualified parking expenses, as set by the IRS, is $260/month in 2018.
For parking/vanpool expenses, you can only be reimbursed for expenses that were incurred getting to/from work. Transit doesn’t have to be exclusive.
What is eligible?
- Buses, rail, subway, ferry, shuttle bus, vanpool, parking (parking must be near office or at a near transit station), and biking.
What is not eligible?
- Carpool, telecommute, walk, taxis, tolls, fuel, and gas
History of IRS Electronic Payment Card Guidance
The IRS first provided detailed guidance regarding the use of electronic payment cards for transportation benefits in Revenue Ruling 2006-57. The original January 1, 2008 effective date of Rev. Rul. 2006-57 was delayed several times, but the IRS updated its electronic payment card guidance in Rev. Rul. 2014-32. While Rev. Rul. 2014-32 is generally effective immediately, its ruling that employers may no longer provide cash reimbursements if a terminal-restricted debit card is readily available does not take effect until January 1, 2016.
Smartcards as Vouchers
Smartcards are defined as “cards that contain a memory chip storing certain information that uniquely identifies the card and value stored on the card, and that can be used either as fare media or to purchase fare media. If the value stored on a smartcard can be used only as fare media for a particular transit system, the smartcard qualifies as a voucher. And if the amount allocated to each employee’s smartcard is within the applicable monthly limit, employees are not required to substantiate their use of the smartcards, and the value provided through the smartcards is excluded from employees’ gross income and from their wages for employment tax purposes. O.C.A.’s mySource debit card complies with Rev. Rul. 2014-32. The mySource card is terminally-restricted and is considered a voucher.
- Each employee enrolled in the transit benefit will receive O.C.A.’s terminal restricted mySource debit card.
- The mySource card will have your monthly election available on the card to pay for your monthly transit expense. Please note that funds can only be reimbursed once the employee has contributed monies into their parking and/or transit benefit. So if the employee has not made any payroll contributions, no funds will be available on the mySource debit card.
- If enrolled in parking, employees may be reimbursed via paper check or direct deposit. This does not apply towards transit expenses.
Employees can change their parking and transit elections monthly. Keep in mind, you can enroll in both Transit and Parking, but you cannot use funds in one to pay for expenses in the other. Pre-tax contributions are deducted from your pay in equal amounts throughout the year.
A tax-favored Transit & Parking plan allows your employees to deduct eligible work-related mass-transit and parking expenses on a pre-tax basis. Employees will see an increase in their take-home pay due to the reduction in Federal and FICA taxes. Employers will save on FICA taxes and benefit from providing an added bonus to employees.
OCA’s commuter benefits solution offers simple transit and parking benefit administration!Employee’s can receive OCA’s transit/parking debit card to pay for their commuter costs. Alternatively employees can be reimbursed for their expenses via direct deposit or paper check.Employees will see an increase in their take-home pay due to the reduction in Federal and FICA taxes. Some employees will save 35%-40% on their commuting expenses!
Here’s an example showing potential employer tax savings:
Company ABC has 30 employees enrolled in the transit program. Each employee contributes the monthly max contribution of $255. The percentage of the employee’s gross salary that they pay in Federal, State, and Local taxes is 30%.The estimated tax savings per employee is $76.50 per month or $918 per year. The estimated employer tax savings by the employer is $7,022.70. When factoring in OCA’s administrative fee, the employer has a net financial gain close to $5,000 dollars!