If your employees pay for parking, the Railroad, a bus, or pool in a van – you can help them save money with a Commuter Benefit Spending Account.
State and Federal tax law, under Internal Revenue Code (IRC) § 132, allow employees of the employer to save taxes on parking at work and transit or vanpooling expenses incurred to get to work. Employees save by setting up a pretax payroll deduction that reduces taxable income. Qualified expenses are exempt from Federal, State and FICA (Social Security and Medicare) taxes. Tax savings for the employee is based on their income bracket; the employer benefits by lowering their covered salary for purposes of FICA and Workers Compensation costs.
Annual limits are set by the IRS. For calendar year 2016, the limits are as follows: Parking deduction is limited to $255/month. Transit passes & van pool expenses, whether separate or combined, are limited to $255/month. Any monthly costs above these limits cannot be exempt from taxes and cannot be carried over to future months.
Federal Regulations require the employee to provide a written statement from the provider of the service that supports their claim if the provider provides receipts or other documentation in the ordinary course of its business. If the provider does not provide receipts or other documentation, explain the situation in the column labeled “Attach proof of expense or explain why it is not available in the ordinary course of business.” If the provider normally provides documentation such as receipts you must provide a copy with your claim. The documentation must show: – The name provider; – The date or range of dates of parking, travel, or payment. You may not claim expenses for more than one month on one line; – A description of the service provided (for example, “April 2010 parking” or “May 2010 bus fare”); and – The cost of the service or the amount paid.
There is no mandated “use-it-or-lose-it” provision and funds can carry over into future dates. However, note that an employee could lose funds if he terminates employment.