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tt notice Updated: 2:24 p.m., Wed. Oct. 1, 2014

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Potential Tax Savings for Employers and Employees

More than 1,100 local employer worksites offer transit subsidies. When you cover part or all of your employees' transit passes, you can save money on taxes. And with a pre-tax payroll deduction, your employees can too.

Federal and state tax benefits

If your company pays for any part of an employee's transit pass or vanpooling costs, you may be able to claim the costs as an allowable business expense on your federal and state taxes.

Tax laws allow tax-free transit benefits, up to $1,500 per employee, per year. For more information on IRS Code Section 132 (F), as amended by TEA-21, Title IX, Section 910, refer to IRS Publication 15-B and check with your tax advisor or CPA.

Pre-tax payroll deductions

You and your employees can both save money when you offer them pre-tax payroll deductions to pay for part or all of their transit passes.

Pre-tax deductions reduce employees' taxable earnings, so they also reduce the amount of FICA and unemployment taxes you and your employees must pay. (Individual savings will depend on each employee's income tax bracket as well as federal and state tax rates.)

Each month, a fixed amount is deducted automatically from employees' paychecks before taxes are assessed. Payroll deductions can be coordinated by your benefits/payroll provider or a third-party benefits administrator.

Example of savings with pre-tax payroll deductions

 

Employee

Employer

12 Adult 1-Month Passes

$1,200.00

0

Approximate federal tax savings (15%)

($180.00)

0

Approximate FICA savings (7.65%)

($91.80)

($91.80)

Approximate unemployment tax savings (3.3% average)

0

($39.60)

Approximate state tax savings (9%)

($108.00)

0

Total savings with pre-tax deductions

($379.80)

($131.40)