Tax Advantages and the Law

Qualified Transportation Fringe
For taxable years beginning in 2010, the monthly limitation under § 132(f)(2)(A), regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass, and under § 132(f)(2)(B), regarding the fringe benefit exclusion amount for qualified parking, is $230.
http://www.irs.gov/pub/irs-drop/rp-09-50.pdf

Effective March 1, 2009, new federal legislation allows employers to provide employees with a tax-free or pre-tax transit benefit to increase from the current $120 to $230 per month for transit and a parking benefit up to $230 per month.
P.L. 111-5 American Recovery and Reinvestment Act of 2009 excerpt

SmartBenefits® is a better alternative. Read the Washington Post article, "GAO Finds Fraud in Commuter Program."

Tax advantages

• Employer Paid Direct Benefit Tax Advantages of SmartBenefits® NEW
• Pre-Tax Salary Tax Advantages of SmartBenefits® NEW
• Pre-Tax Salary Tax Advantages SmartBenefits® Parking

In June 1998, the Transportation Equity Act for the 21st Century (TEA 21) was signed into law. TEA 21 includes a provision amending the Internal Revenue Code (26 U.S.C. Section 132(f)). This amendment to the tax code allows employers to offer their employees public transportation benefits in addition to salary or wages, or allow the employee to elect to receive Metrochek as a pre-tax payroll deduction, or some combination of the two.

Tax laws

§1.132-9 Qualified Transportation Fringes. Questions and Answers.

Federal legislation prohibits cash or paycheck reimbursements when voucher programs are available.

Under federal tax laws, SmartBenefits® are available four ways. Many employers reap a 2-to-1 benefit. (Specific tax rules may vary according to state and type of enterprise.)

1. Direct employer-paid benefit: Give an employee a direct benefit of up to $230 maximum per month ($2,760 per year). It's tax-free to the employee, and if you're a private sector employer, you can probably write off the cost of providing SmartBenefits® as an ordinary expense.
2. Pre-tax salary deduction: By establishing a SmartBenefits® deduction program, employees can pay with pre-tax dollars through payroll deduction. The money withheld is completely exempt from state and local taxes. For each employee who receives the maximum of $2,760 per year, the savings is around $211.14 per year in FICA and unemployment insurance.
3. Combination: The employer provides part of the $230 benefit and allows employees the option to pay the balance from pre-tax income. The employer simply buys SmartBenefits® using the combined amount. Employees still save on payroll taxes
4. As an incentive: Offer it as part of a salary increase, bonus, award or incentive. No matter how you offer it, SmartBenefits® is a powerful tool for helping employers recruit, retain, and motivate employees.