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Tax Benefits

The federal tax benefits program known as Commuter Choice, is based on Section 132(f) of the federal tax code. It allows employers to offer employees financial incentives for using alternative commute modes. Commuters are able to pay for "qualifying transportation expenses," which include transit passes, vanpool fares, bicycle commuting expenses, and parking fees, as pre-tax costs.

How it Works

Employers offering a Commuter Choice tax benefits program have the ability to offer the benefit for transit, vanpooling or parking in one of three ways:

  1. Employees Pay - Employees can use up to $255 of pre-tax income per month to pay for transit, vanpool, or parking through payroll deduction, much like a flexible savings plan. When the employee purchases a transit pass or vanpool seat, he/she pays no income tax on the benefit and the employer saves through reduced payroll taxes.
  2. Employer Pays - Employers can give up to $255 per month to pay for the cost of a transit pass, vanpool fare, or parking expenses. The employer then receives a tax deduction for the amount given and saves over providing the same value in gross income.
  3. Employee & Employer Share the Cost - When the employer and employee share the cost of a transit pass or vanpool seat, both share in the savings. Each month, an employer can opt to pay a portion of the cost of a transit pass or vanpool seat and allow the employee to cover the remaining cost through a pre-tax payroll deduction.
Bicycle Benefit

The bicycle benefit is an employer-provided reimbursement of up to $20 per month for reasonable expenses related to commuting by bicycle, which can then be claimed as a tax deduction by the employer. The bicycle benefit cannot be administered as a pre-tax payroll deduction.

Where can I get more information?

Access Commuter Choice tax benefit info directly from the following links:

IRS Guidance
National Center for Transportation Research (NCTR)

Program Implementation

The Commuter Choice tax benefits program is exempt from restrictions and reporting requirements that accompany other pre-tax programs allowed by the IRS. An employer does not have to ask the IRS for permission to implement. There are no plan filings or forms for the employer to fill out, no irrevocable elections and no mandatory enrollment dates.

The tax benefit program can be administered in-house or through a payroll service provider. There are several companies that specifically provide transportation benefit payroll services including Wage Works , Benefit Strategies and Edenred .

Massachusetts Commuter Deduction

The Commonwealth of Massachusetts allows a commuter deduction on individual tax returns. The deduction includes certain amounts paid by an individual for tolls paid for through an E-ZPass account or for weekly or monthly transit commuter passes for MBTA transit, bus, commuter rail or commuter boat, not including amounts reimbursed or otherwise deductible.

For more information visit the Department of Revenue Commuter Deduction page.