Businesses are able to boost employee morale by offering fringe benefits. In addition to being tax-deductible by a company, some types of fringe benefits are tax-free to employees. Employers that provide qualified transportation benefits produce tax advantages for both the company and the employee.
Section 132 of the Internal Revenue Code allows employees to exclude certain types of transportation payments from taxable income. The added benefit to the company is that qualified fringe benefits are not subject to Social Security and Medicare withholding. There are three general categories of transportation costs that qualify as fringe benefits.
Your business is able to provide up to $130 monthly to each employee to offset the qualified costs of traveling to work. The tax benefit for vehicle travel is applicable to the expenses of vanpooling and transit systems.
Most private and public transit systems offer a monthly ticket in addition to payment rates for single trips. Providing free monthly travel passes to your employees with access to a transit system helps increase the reliability of your workforce.
For employees that commute in their own vehicles to a congested area, parking can be costly. You are able to pay up to $250 per month to each employee to reimburse their cost of parking. The benefit typically applies to parking lots near your business, but transit system parking lots also qualify.
The tax benefit for employees who commute by bicycle is not nearly as advantageous as the other transportation fringe benefits. An employee commuting by bicycle can be reimbursed for up to $20 in bike expenses per month.
The bicycle commuter does not receive a pre-tax benefit. Employee taxable income is not reduced up-front by $20, and taxes are fully withheld. As an employer, you deduct the $20 as wage expense and pay your portion of Social Security and Medicare. The tax advantage is that the final reimbursement of expenses is not taxable to your employee.
Transportation fringe benefits are selected and calculated on a monthly basis. The mode of transportation preferred by your employees is likely to change with the seasons.
An employee can receive up to $380 monthly for both vanpool travel and parking. An employee receiving the bicycle reimbursement is ineligible for other transportation fringe benefits within the same month.
Providing fringe benefits for transportation is a practical route for enhancing employee contentment and reducing your payroll tax. Contact an accounting firm like Herman & Cormany for more advice on the tax advantages of fringe benefits.Share
27 July 2015
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