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What is the Commuter Tax Benefit?

Federal tax law (Section 132 [f] of the Internal Revenue Code) allows employers to offer as incentives
transit passes or vanpool subsidies (up to a certain amount), employees to set aside pre-tax income
to pay their share of transit and vanpool fares, or a combination of both. Employers can save on payroll-
related taxes. Employees can save on federal income taxes.

As of February 2009, employees may set aside up to $130 a month of their salaries before taxes to pay for transit and vanpool fares, up to $250 per month for qualified parking expenses at or near an employer’s workplace from which the employee commutes via transit or vanpool, or a combined amount of up to $380 per month for both. The Commuter Tax Benefit is available only through an employer-sponsored commute benefit program and is easy to set up. See the Commuter Tax Benefits Summary Table The preceding link opens a new window and 

leaves NYSDOT trusted sites. for options available for employers and employees. Make sure to consult your corporate accountant or tax attorney.

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What Modes of Transportation Qualify?

Transit services, publicly or privately owned or operated, and employer-provided or sponsored vanpools qualify under the tax-exempt program.

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How Do I Get Started?

It’s easy!

Step 1 – Employer Offers Tax-free Transportation Benefits to Employees

You, the employer, may offer tax-free transportation benefits such as transit passes and vanpool services as an employee incentive to use alternative commute options. Federal tax law allows you to save on corporate payroll taxes by deducting the full cost of these benefits as a business expense. Your employees, in turn, receive the benefit to a value of up to $115 per month on a tax free basis.

Step 2 – Employees Set Aside Pre-Tax Income to Pay for Transportation Expenses

You, the employer, may also offer your employees the option of setting aside a portion of their pre-tax income via payroll deduction that allows employees to purchase transit passes or pay for vanpool fares themselves. The pre-tax income set aside amount is tax-free up to $115 per month and allows the employee to save on personal income taxes.

Step 3 – Share the Benefit and Split the Cost

You, the employer, can also choose to split the cost of purchasing transit passes or paying vanpool fares with your employees. You cover a portion of the cost directly and your employees cover the rest out of pre-tax dollars. You and your employees can both benefit.

Employers providing transit passes or vanpools for their employees keep a record of receipts of purchase and a list of pass recipients and vanpool users. Additional paperwork is minimal. You don’t have to file a plan. The IRS does not have to approve your program. You can start your program at any time of the year. You can make it as formal or informal as you like. For details or to make sure you are in compliance, See a Tax Benefit to Use Every Day. The preceding link opens a new window and 

leaves NYSDOT trusted sites.

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NYS Employee Commuter Tax Benefit

Employees working for New York State also qualify for the NYS Employee Commuter Tax Benefit. The preceding link opens a new window and leaves 

NYSDOT trusted sites. For additional details on how to participate, see NYS-Ride The preceding link opens a new window and leaves NYSDOT 

trusted sites.

Employees working for county and local governmental agencies should consult their human resource or personnel departments to determine eligibility.

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