Tax-free commuter benefits for employers and employees ORCA pass commuter benefits are similar to offering other tax-free programs, such as a flexible spending account, except the tax rules they fall under make commuter benefits easier to implement and manage. Compare Section 132(f) Commuter Benefits Plans versus Section 125 Flexible Spending Plans. Subsidies: Employer can help pay costs or notThe company decides whether to subsidize (or help pay for) any part of the cost. An employer may offer commuter benefits in three ways:
- Employer-paid: Company covers the full cost of the benefit with a tax-free employer-paid subsidy.
- Employee pre-tax deductions: Company offers an employee-paid pre-tax payroll deduction.
- Employee/Employer share costs: Company and employee share costs with a combination of both of the above.
Tax savings for employers and employees
Option | Employer Tax Benefits | Employee Tax Benefits |
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Employer-Paid:
Employer provides employees with an ORCA card containing a monthly or annual pass or e-purse amount to use for commuting via bus, train, vanpool, or ferry. |
Employer pays no payroll taxes on the value of the benefit, which makes providing this benefit cheaper than providing a comparable salary increase. The expense is a tax-deductible business expense for the company. The expense can be claimed in part against State B&O tax. |
The employee does not pay any taxes on the value of the the pass provided. |
Employee Pre-Tax Deductions:
Employer allows employees to reserve pre-tax income each month in the amount needed to pay for transit or vanpool. Employer uses employee-reserved funds to purchase the pass requested by employee. Employee authorization sample form for employee-paid benefit in MS Word or PDF format |
Employer pays no payroll taxes on the income that is reserved by the employee through a pre-tax deduction.
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Employee saves on income tax and payroll tax. The payroll amount reserved is no longer treated as taxable salary. |
Employee/Employer Share Costs:
Employers pay transit or vanpool costs up to a limit determined by the employer. The employee pays for the remainder of the costs either through a pre-tax payroll deduction or directly out-of-pocket. Total employer and employee paid costs cannot exceed the monthly limits of $230/month for transit and vanpool. Employee authorization form for shared cost in MS Word or PDF format |
Same Employer Tax Benefits as Employer-Paid above for the employer's share of costs. Employer further saves payroll taxes on the portion of the benefit paid by the employee through pre-tax deduction. |
Employee does not pay taxes on the portion of the benefit provided by the employer. Additionally, the employee saves on income tax and payroll taxes by taking a pre-tax deduction to pay for the remainder of his/her commuting costs. | Tax-exempt and pre-tax limits are set by the Internal Revenue ServiceIRS limits for the 2010 tax year:- Up to $230 per employee per month for vanpool, bus, ferry, rail (all public transportation). In King County, the maximum cost for a monthly pass is under $200. Vanpool could exceed limit.
- Up to $230 per employee per month for qualified parking, or
- Up to $460 per month per employee for both public transportation and qualified parking.
Employers are encouraged to consult a tax advisor or other professional for detailed information regarding the tax implications of commute benefits.
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