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In the past year, the average commute time for employees in the US reached a record high of 27 minutes a day. That adds up to 225 hours per year, and in big cities, the amount of time your employees spend getting to work is likely even higher. Luckily, offering your employees commuter benefits can ease (at least some of) the misery of sitting in hours of rush hour traffic.
More than 13 percent of small businesses offer public transit subsidies alone, so it’s becoming an increasingly popular way to take care of employees. Also, some commuter benefits can be offered at low to no cost to the employer because of related tax benefits. Sounds good, right? Here’s everything you need to know, from how to offer them to your employees to your state and local requirements.
What are commuter benefits?
Commuter benefits help cover an employee’s out-of-pocket transportation-related expenses, either by helping them set aside pre-tax dollars or by covering some of their costs. Offering these benefits lowers your employees’ taxable income — and it can mean lower FICA taxes for you to pay as the employer too. Also known as transportation benefits, these perks can help offset long commutes when remote work isn’t an option, especially if you’re located in a metropolitan area.
Should employers consider offering commuter benefits?
Offering commuter benefits could help employers attract and retain top talent. Your current employees might appreciate them since they can use tax-free dollars toward commuting costs, easing pressure on their pocketbooks — and preventing staff turnover. It might also help you stand out when recruiting: according to an employee benefits study by the Society for Human Resources Management (SHRM), only 14% of companies offer a transit subsidy.
What is the pre-tax commuter benefit limit for 2024?
In 2024, the IRS will allow you to withhold up to $315 per month of each employees’ pre-tax income to cover commuter benefits. That’s up from $300 in 2023. Depending on where your business is located, this may or may not cover the expenses associated with your employees’ commutes. In some cities, parking can cost double this maximum. You have the option to subsidize the difference, but it’s completely up to you.
Types of commuter benefits
There are two types of pre-tax commuter benefits: Transit and Vanpool or Parking.
Public transit and vanpool benefits cover commuting to and from work via:
- Trains, buses, subways, trolleys, water taxis, light rail, ferries
- Rideshare (UberPool, Lyft Shared but not regular rides for either service)
- Vanpool
Parking commuter benefits cover:
- Parking fees for meters, garages, and lots
There are also a few free or after-tax commuter benefits options you can consider offering to your employees, like:
- Allowing your employees to work remotely on certain days to reduce weekly commute time.
- Helping organize carpooling programs.
- Reimbursing your employees for toll costs.
- Incentivizing your employees to carpool or use public transit.
- Offering fuel cards or discount programs.
- Providing ride-sharing credits or vouchers for events outside of regular work hours.
- Offering reimbursement for bike maintenance/repairs. This was considered a pre-tax benefit until the Tax Cuts and Jobs Act changed that in 2017 but is scheduled to return as a pre-tax benefit in 2026.
Typically, commuter benefits cannot cover things like residential parking, taxis, gas, mileage, parking at transit locations, or business trip travel expenses.
Don’t forget workers with mobility limitations
If you have employees with disabilities that could prevent them from using the benefits you offer, make sure you’re covering them as well. Consider paying for the cost of a van service or rideshare. Also, most cities have public transportation options for people who use wheelchairs or have limited mobility.
Commuter benefit requirements
Depending on where you live, it’s possible that providing commuter benefits for your employees is required by law.
So far, New Jersey is the only state that requires you to offer commuter benefits if you have 20 or more employees. However, a number of municipalities have their own requirements for in order to reduce traffic and help defray the cost of commuting. A few notable examples of when and where requirements exist:
- Seattle, WA, if you have 20 or more employees.
- New York City, NY, if you have 20 or more full-time non-union employees.
- Washington, D.C. if you have 20 or more employees.
- Berkeley, CA, if you have 10 or more employees.
- Richmond, CA, if you have 10 or more employees whose commute to work is an average of 10 hours or more per week.
- San Francisco, CA, if you have 20 or more employees.
The city of Los Angeles has begun talking about mandating a law requiring commuter benefits, but it has yet to go into effect.
How to offer commuter benefits
Go right to the experts: your employees, your fellow business owners, and your benefits provider. Ask your staffers if commuter benefits are something they want — and if it would make sense to offer them over things like PTO, retirement, or health benefits until your bottom line can stretch a bit. Talking to them will give you a better sense of how essential this benefit feels and help you decide how much you’re willing to spend per employee. You can do pre-tax withholding for free, but you may also want to match or pay outright for pieces of your offering.
Talk to other businesses in your building or center to see how they’re handling parking or commuter expenses specific to your area. For some companies, you’ll only have one parking option while others will have multiple garages or parking lot choices. Could all the tenants negotiate better pricing and lower costs from the start?
Talk to a tax pro or accountant about the best options if this is the right perk for your employees — and to make sure you understand how to set everything up correctly if needed. If you choose to implement one or more of the pre-tax commuter benefits options, your payroll services provider can also make sure it’s automatically and correctly deducted from payroll and payroll taxes.
From improving employee satisfaction to reducing taxes to taking the sting out of a long commute, there can be some big advantages to offering commuter benefits. If you sync with your team and do a little research, it can be really easy (and inexpensive) to go above and beyond for your employees.
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Lillian Mirakhor was a Senior Marketing Associate at OnPay. Since graduating from the University of Georgia, she’s worked with small businesses in the tech and SaaS industries helping them boost their marketing efforts.