As a Professional Employer Organization (PEO), C2 assists its corporate clients with administering various benefit plans they want to offer their employees. Our HR teams frequently answer benefit plan questions surrounding medical insurance, dental and vision plans, life or disability insurance, and tuition reimbursement benefits. A little-known benefit referred to as the Commuter Benefit can help employees defray the cost of public transportation costs when commuting to and from work. This can be particularly beneficial in large metro areas where public transportation is readily available.
What is a Commuter Benefit and how does it work?
In June 1998, the Transportation Equity Act for the 21st Century (TEA-21) was signed into law authorizing over $200 billion to be allocated to various projects that protect the environment, enhance economic growth, and improve the Nation’s transportation infrastructure. A provision in the TEA-21 provides employers the ability to allow employees to pay for certain commuting expenses with pre-tax dollars. Commuter benefits are a great opportunity for employees to utilize tax-free dollars on their commuting costs while lowering their taxable income, avoiding the frustrating – sometimes inevitable traffic jam, contributing to a “greener” economy, and saving money in the long run.
A typical Commuter Benefit Program allows employees to redirect a portion of their salary to be used for two specific types of expenses: mass transit and/or parking. In 2020, the IRS raised the maximum pre-tax contribution limit to $270 per month that can be used towards commuting costs. This means that employees can pay $270 per month toward eligible commuting expenses — and not have to pay taxes on that money if they elect to contribute on a pre-tax basis.
C2 offers two types of commuter programs – DC Metro Area SmartBenefits Transit/Parking Program and the Commuter Benefit Program (outside of DC metro area). Both programs allow contributions to be deducted on a pre-tax basis or post-tax. All pre-tax elections must comply with IRS guidelines regarding such benefit plans.
SmartBenefits for the DC Metro Area
The SmartBenefits program is administered through the Washington Metropolitan Area Transit Authority (WMATA). SmartBenefits transit expenses are for the DC Metro Area and can be used on the VRE, MARC Rail, MTA commuter buses and the Metro. SmartBenefits parking expenses are for non-metro operated lots.
To take advantage of this benefit program, an employee must complete a DC Metro Area SmartBenefits Transit/Parking Program Compensation Reduction Agreement, which authorizes deductions for this benefit on a pre-tax basis. The selected amount of money is transferred to the employee’s SmarTrip card, which the employee can use by simply scanning the card at any metro line or bus.
It can take up to sixty (60) days from the time of your deduction for your SmarTrip money to be available. As a reference, the chart below shows when money will be available based on the month in which deductions are taken.
It is important to know that the IRS prevents the transfer of money between a mass transit account and a parking account, therefore an employee should weigh all commuting options they may need before deciding on whether and how to participate in a commuter benefits program. Employees may change, continue, or cancel their participation in the Transit/Parking Program at any time. Once elected, payroll deductions will continue until the employee completes a new election form to change or stop their participation in the benefits program. A change or cancellation of deductions will be effective on the following paycheck.
Commuter Benefit Program (outside DC metro area)
C2’s Commuter Benefit Program is also available to client employees living and working outside of the DC metro area and can be used for parking or mass transit.
When using the Commuter Benefit Program, deductions are taken each pay period and reimbursements are made by filing a Reimbursement Claim Form. An employee must first incur an eligible parking or mass transit expense before submitting a Reimbursement Claim form. Parking at or near your residence is excluded. When submitting a reimbursement claim, a receipt from the parking facility or transit authority is required. Please note cancelled checks, credit card or cash register receipts are not considered valid documentation by the IRS. Once processed by payroll, the reimbursement will be issued to the employee on their next regularly scheduled paycheck.
Just like with the D.C. metro area plan, employees may change, continue, or cancel their participation in the Transit/Parking Program at any time. Once elected, payroll deductions will continue until the employee completes a new election form to change or stop their participation in the benefits program. A change or cancellation of deductions will be effective on the next regularly scheduled paycheck following submission of the completed form. Reimbursement requests must be submitted within thirty (30) calendar days of the employee’s termination of employment along with supporting documentation.
Reimbursement requests must be for services that were incurred prior to your termination date. Unused dollars or remaining balances in the plan will be forfeited if not claimed within the first thirty (30) days after termination.
Being headquartered in the D.C. capital region, C2 has long offered a commuter benefit as part of its employee benefits offerings. In large metro areas especially, having the ability to use money on a pre-tax base to help offset commuting expenses can be a meaningful benefit for employees. Companies who do not currently offering a commuter benefit program should really consider doing so. Not only does it provide your employees a nice additional benefit, but it may also enhance your recruiting efforts as your company seeks to hire the “best and brightest” to help move the company forward.
C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.