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What Are Commuter Benefits?

Adam Uzialko
Adam Uzialko
Freelance Editor

Commuter benefits help reduce the cost of commuting to your employees. Here's what offering commuter benefits could mean for your business.

  • Commuter benefits are pre-tax wages set aside for commuting expenses, including mass transit and parking.
  • Commuter benefits can be withheld by the employee up to $540 per month, split evenly between mass transit and parking expenses.
  • Employees can opt to withhold less than the maximum pre-tax amount if their commute costs less than $540 per month.
  • This article is for employers and employees interested in learning more about commuter benefits and how they could save money.

Many employers offer benefits that sweeten the overall compensation package offered to employees. One increasingly common benefit being offered in recent years is a commuter benefits package. Commuter benefits can help reduce the cost to employees of traveling to and from work, helping them pay for mass transit and parking expenses. How do commuter benefits work exactly and what are the advantages to both employees and employers? Read on to learn more about commuter benefits and how they can save money for everyone.

What are commuter benefits?

Commuter benefits offer employees a more cost-effective way to travel to and from work, allowing them to set aside pre-tax wages to spend on mass transit and parking each month. Commuter benefits are designed to lower an employee's taxable income, saving them between 30% and 40% on transportation costs in the process.

"Commuter benefits are pre-tax wages used to cover transportation and commuting costs, including parking," Andrew Jezic, founding partner of The Law Offices of Jezic and Moyse, told Business News Daily.

Commuter benefits are a nice perk employers can offer to improve the overall value of their compensation packages. Extending commuter benefits might make open job opportunities more attractive to top talent, which can improve your recruitment and retention efforts. Further, employees who are spending less on commuting and lowering their taxable income at the same time are more likely to exhibit high morale and contribute to a positive company culture.

Key takeaway: Commuter benefits are pre-tax wages that can be used on mass transit and parking for traveling to and from work. These benefits can boost hiring, retention and morale.

How do commuter benefits work?

Commuter benefits are typically taken out of employee paychecks before taxes are applied, lowering the employee's taxable income. They are set aside for commuting costs, such as public transportation or parking. The current U.S. Internal Revenue Service (IRS) limit on commuting benefits contributions is $270 for mass transit expenses plus $270 for parking expenses.

"An employee can enroll in a commuter benefits program, which allows them to pay for the commute to work with pre-tax money directly from their paycheck," said Ben Reynolds, CEO and founder of SureDividend. "You can take out $270 per month to use on transit expenses and use another $270 per month on parking expenses."

That means employees can reduce their monthly taxable income by a total of $540. However, employees have the option to contribute less to their commuter benefits. For example, if $100 per month is enough to cover commuting costs, employees can simply withhold $100 from their paycheck, rather than the maximum allowable $540.

Some companies may also offer tax-free employer subsidies alongside the employee option to withhold money from their own paycheck. Some companies exclusively offer this form of commuter benefit, while others blend both models into a hybrid.

Key takeaway: Commuter benefits packages have a total maximum withholding amount of $540 per month, though employees can withhold less if they so choose.

What do commuter benefits cover?

Commuter benefits cover mass transit and parking expenses associated with traveling to and from work. While this makes for cost-effective travel, commuter benefits do not apply to non-work-related travel or most forms of individual transportation. Generally, commuter benefits only cover mass transit costs and parking expenses near a workplace.

"You can use the transit expenses for using the subway, ferry, rideshare, train, bus and more," Reynolds said. "The parking expenses are for those who park close by the company they work for only. However, they can’t be used for full-priced Lyft or Uber costs, gas and mileage, car insurance, or parking that's not close to your workplace."

Every plan has slightly different rules, though, so to determine precisely what is and is not covered under your commuter benefits, review any documentation you might have received or consult with your HR representative to learn more about your specific plan.

Key takeaway: Commuter benefits generally cover mass transit, including subways, trains, ferries and rideshares. They also cover parking expenses nearby a workplace. Commuter benefits typically cannot be used on non-work-related travel or individualized forms of transportation.

What are the advantages of offering commuter benefits to employees?

Commuter benefits might seem minor at first, especially considering they are funded with money from an employee's paycheck. However, it is important to recognize the long-term benefits of continuously withholding money pre-tax to pay for transportation costs.

"Until COVID-19 … [commuter benefits] had been a good facet of sound financial planning on the part of employees," Jezic said. "There were any number of benefits to both employer and employee, including higher take home pay and reduced payroll costs."

Reynolds said this allows employees to save money because the commuter benefits they take out each month are pre-taxed.

 "Therefore, if you use the total amount of $540 for transit and parking expenses, then that money doesn't need to be taxed, saving you from paying more income taxes," he said.

Commuter benefits plans also incentivize employees to embrace a more environmentally friendly method of travel, opting for mass transit or park-and-rides instead of individual vehicles. This can not only help reduce pollution, but also saves employees on costs associated with maintaining a personal vehicle for work.

"[Commuter benefits are] a great way to incentivize the use of public transportation," said Lucas Robinson, CMO of Crediful. "Commuters who use them can save big on vehicle maintenance, insurance, and fuel costs, all while helping decrease pollution and traffic congestion."

And it's not just employees who can benefit. Studies show that employers who offer commuter benefits can save up to $40 per employee per month on payroll taxes. For a business that employs 50 people, those savings equate to $24,000 per year.

Key takeaway: Commuter benefits save employees money and reduce their taxable income. They also offer employees the opportunity to save on expenses associated with a personal vehicle. Finally, commuter benefits save employers an average of $40 per employee per month.

Image Credit: Drazen Zigic / Getty Images
Adam Uzialko
Adam Uzialko
Business News Daily Staff
See Adam Uzialko's Profile
Adam Uzialko is a writer and editor at business.com and Business News Daily. He has 7 years of professional experience with a focus on small businesses and startups. He has covered topics including digital marketing, SEO, business communications, and public policy. He has also written about emerging technologies and their intersection with business, including artificial intelligence, the Internet of Things, and blockchain.