Transit Reimbursement Accounts
Section 132 (f) of the Internal Revenue Code allows you to offer employees
a tax benefit for the mass transportation and parking expenses they incur when traveling to and from work.
Employees contribute to their transit reimbursement account through payroll deductions with pre-tax dollars.
Under a Transit Reimbursement Account, employees may pay tax-fee up to $105 per month ($1,260 per year) in 2005 for public transportation and/or van pools and up to $200 per month ($2,400/year) for parking near the employer location or at a location from which the employee commutes to work, for a total of $305 per month ($3,660/year).
The Transit Reimbursement Account (TRA) also saves you money by reducing your FUTA, Social Security, and Medicare taxes, as well as lowering your workers compensation costs.
What are the allowable mass transit costs?
- Bus vouchers and passes used to commute to and from work.
- Van pooling in a "commuter highway vehicle" to and from work, so long as 80% of mileage is for transportation of employees between work/home and the vehicle is at at least half the maximum adult seating.
- Ferry/boat passes used to commute to and from work.
What are qualified parking costs?
Qualified parking costs include parking provided to an employee at or near the employer’s business premises. It also includes parking at or near a location from which the employee commutes to work by mass transit, van pooling, in a commuter highway vehicle, or by carpool. Parking at or near the employee’s home does not qualify.
Why should employees participate?
They can avoid paying taxes on their commuting costs. (Social Security tax at 7.65% and Federal Income Tax of generally 15% to 28%).
Are there any negatives?
Because employees do not pay Social Security taxes on their deductions, their Social Security benefits may be slightly reduced.
Can an employee change or revoke his or her mass transit reimbursement amount?
Yes, employees can change their existing election at intervals which you specify in your transit plan document.