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frequently asked questions
By Employees
What is the Commuter Choice Program?
Commuter Choice refers to recent changes in the
Internal Revenue Code [(26 USC 132(f)] which
permit your employer to offer you a tax-free
benefit to commute to work by methods other than
driving alone.
Why
is there a Commuter Choice Program?
The
goal of Commuter Choice is to make it as
economical for employees to use mass transit as
it is to drive. Reducing the number of cars on
the road improves air quality, reduces traffic
congestion, conserves energy, and saves wear and
tear on roadways.
Can I receive the benefit in addition to or
instead of salary?
Yes.
There are several ways in which you may receive
a transit or vanpool benefit.
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1. |
Your
employer may elect to provide you the benefit in
addition to your current salary. The benefit
would be free of all pay roll and federal income
taxes to you. Your employer will have to decide
whether to offer this benefit in addition to
your income. |
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2. |
Your
employer may permit you to have the cost of
Metro passes taken out of your paycheck before
taxes to pay towards the actual cost of
commuting on transit or in vanpools. You would
not pay state and federal income, or payroll
taxes on the amount
of the benefit.
Based
on Metro’s $47.00 Monthly Pass, up to $564 a
year of your wages or salary would be treated as
a tax-free benefit rather than as taxable
income. Your W-2 would reflect a reduction equal
to the amount of the benefit. This option is
known as the “pre-tax” benefit.
Many
employers prefer this option because the
employee pays the cost. You still save on your
payroll, state and federal income taxes. This
helps you to travel smarter and stretch your
budget at the same time.
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3. |
Your
employer may share the cost of commuting with
you. Your employer may elect to pay for a
portion of your tax-free transit benefit and
allow you to pay a portion of the costs by
having your share taken out of your paycheck
before taxes.
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Can
I simply pay my own commuting costs and ask my
employer to reimburse me?
In the
Metro Transit service area where passes that can
be exchanged for transit media or vanpool
services are readily available, your employer
may not reimburse you for the cost of transit.
See IRS rules governing section 132(f) benefits
for a definition of “readily available.”
If
I receive a parking benefit, can I convert it
into a transit or vanpool benefit?
Yes.
If your employer is currently providing parking
benefits, and you and some of your co-workers
would like the option of converting that benefit
to cover your costs for transit and vanpools,
your employer may offer you the option to “cash
out” the parking benefits.
For
example, if you receive a free parking space
valued at $135 and your employer is willing to
convert some portion of his or her costs into
additional compensation for you, you could take
up to $100 per month in employer-sponsored,
tax-free transit benefits. Only the remaining
$35 would be taxable. You could also use that
$30 to cover any remaining commuting costs not
covered by the $100.
You
could accept the full $135, which would be
taxable but could be used for other commuting
alternatives. Although such costs do not qualify
as “tax-free” commuting expenses, some people
choose to use the additional income for expenses
related to alternative commuting, such as
walking shoes, bicycles, fees, fuel and auto
maintenance for carpools and roller blades.
Cash
out works best in situations where employers
acquire parking through third party
arrangements. Since such employers are already
making a cash outlay to cover the cost of the
parking, it is easy to convert the expense to
additional compensation for employees.
If
your employer does not pay out funds for your
parking space, or is unable to generate revenue
from the space, this option is less likely to be
offered.
What vanpools qualify for this benefit?
A
vanpool, or “commuter highway vehicle” must have
a seating capacity of at least 6 adults (not
including the driver) and at least 80% of the
mileage use must be for purposes of transporting
employees in connection with travel between
their homes and places of employment.
For
these commuting trips, the number of employees
transported must be at least one-half of the
adult seating capacity of the vehicle, excluding
the driver.
Can
I receive both a transit and vanpool benefit?
Yes.
However, the maximum tax-free amount is $100 per
month. This same limit applies whether these
benefits are provided separately or in
combination with one another.
For
example, you could receive a $53.00 vanpool
benefit and a $47.00 transit pass for a monthly
total of $100, but could not receive a $70
vanpool benefit and a $47.00 transit pass, since
the total of $117.00 would exceed the tax-free
limit of $100. Any amount over $100 would not be
tax-free.
Does the $100 limit increase over time?
Yes.
With annual changes in the cost of living, the
tax-free amount could increase. The IRS will
announce any increases. If your employer is
paying the cost, the decision to increase your
benefit rests with the employer. Keep in mind
that Metro’s current 31-Day Pass is much less
expensive than the current $100 limit.
Where can I obtain further information?
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Visit the Federal Transit Association's website
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Ask
your human resources office
Need more information?
For more information
on obtaining Metro passes and tickets, e-mail
Mick Rusch at
mrusch@cityofmadison.com.
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