Income tax benefits for alternative commuting
From Portland Afoot
Income tax benefits for alternative commuting are the biggest subsidy for alternative commuting available to Portland-area workers and their employers. They're heavily used by the best Portland employers for low-car commuters to offer good commuter benefits, such as discounted TriMet passes.
Employers have three options for cutting income taxes for themselves and their low-car commuters:
- Employer-subsidized commuting, in which companies cover some or all of their workers' commute expenses and are rewarded with lower business taxes.
- Tax-free transit, which lets workers deduct commute costs from their taxable income.
- Both. Many large employers in Portland combine the programs: Subsidizing workers' TriMet passes by $20 per month, for example, and letting workers deduct the remaining $80 from their taxable income.
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[edit] Employer-subsidized commuting
Employer-subsidized commuting programs let employers cover some or all of their workers' mass transit or bicycle commute costs and write off the cost as a business expense.
Under federal tax law, employers can write off either:
- up to $230 per month per worker for their workers' TriMet passes or vanpool dues, or
- up to $20 per month per bicyclist for bike purchases, repairs, accessories or secure bike parking.
To get the bicycle benefit, a bike commuter must bike to work at least three days a week for the full month and may not receive any tax benefits at the same time for a transit pass. The bicycle commuting benefit was sponsored in Congress by U.S. Rep. Earl Blumenauer of Portland and sat in Congress for seven years before passing in 2008. For details and sample pledge cards, see the League of American Bicyclists page on the bike commuter credit.
Also, TriMet offers free emergency ride home service to all employers who subsidize their workers' monthly transit passes by more than $10.
[edit] Example
A small Portland business with taxable income of $30,000 annually and a marginal tax rate of 23.8 percent (15 percent from federal corporate tax, 6.6 percent from state business tax and 2.2 percent from city-county business tax) would ordinarily owe $7,140 in income taxes.
But it decides to offer a universal TriMet pass as a benefit to its workers. Only ten of its 25 employees report that they use it for their commute, so the company can buy passes for all its workers at a cost to the company of $1,000 per month or $12,000 per year. (Even workers who don't commute by TriMet can use their free passes for non-commute trips.) All employees' salaries stay the same and they no longer have to spend any of their own money on TriMet passes.
The company, meanwhile, writes the cost of the passes off its taxes. Its taxable income drops to $18,000, its tax liability to $4,284. After the $2,856 in tax savings, it turns out that the new benefit will cost the company $9,144 annually, or $30.48 per worker per month.
[edit] How to create an employer-subsidized commuting program
See "how to create a subsidized commuting program" below.
[edit] Tax-free transit
Tax-free transit programs let workers reduce their mass-transit commute cots by perhaps 30 percent without any cost to their employers except administration.
Under Section 132 of the Internal Revenue Code (see p. 6), employers can withhold the price of a monthly or annual TriMet pass or vanpool from a worker's paycheck and pay for the pass or vanpool using pre-tax dollars. The IRS describes this as a qualified transportation benefit (see p. 20).
In this situation, the money comes out of the paychecks of workers who choose to participate. But because the money is spent pre-tax, workers are saving perhaps 30 percent on passes they would buy anyway – for an adult TriMet pass, a monthly savings of about $30 each month.
The only cost to employers is setup and administration. Because workers' take-home pay goes down, employers' payroll tax liability also goes down slightly.
Another option for employers is to contract with a third-party service such as Commuter Check, which as of 2012 charges a transaction fee of 3.5 percent per transit-pass purchase in exchange for handling all the details.
[edit] One-page guide to setting up tax-free transit
If you're an employee who wants to get a discounted transit pass at no cost to your boss, or a boss who wants to offer discounted transit passes at no cost, here's Portland Afoot's one-page guide to everything you need to know. It's designed to be printed out and handed to a colleague.
It was created in fall 2012 in collaboration with local transportation advocate Bjorn Warloe.
[edit] Example of tax savings
A single Portlander earning $30,000 in 2012 faced a marginal tax rate of 31.65 percent (15 percent from federal income tax, 7.65 percent from Social Security and Medicare tax, 9 percent from Oregon income tax). Her employer withholds an extra $100 from each of her monthly paychecks for an all-zone TriMet pass, lowering her taxable income by $100 and saving $31.65 on her monthly taxes.
Her employer, meanwhile, saves $8.33 on its own monthly payroll taxes (Social Security, Medicare and TriMet).
[edit] Examples of the statement workers must sign to opt in
Here are two examples of the forms used by local employers to let their employees opt into pre-tax transit programs set up for free by their employers:
[edit] How to create a subsidized commuting program
To create a program for your workplace involving:
- Transit passes: Contact TriMet at employerprograms@trimet.org or 503-962-7670.
- Vanpools: If it would not involve Clark County, contact Metro at rto@oregonmetro.gov or 503-813-7566. If the vanpool would go through Clark County, contract C-Tran at 360-906-7510.
- Bicycling: contact the Bicycle Transportation Alliance at 503-226-0676.
[edit] External links
- TriMet page on employer benefits
- League of American Bicyclists page on bicycle commuter credit
- slideshow on commuting tax benefits by Metro planner Dan Kaempff
- IRS publication on fringe benefits, including commute benefits
- Oregon publication on using business energy tax credits to reduce auto traffic
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