The federal government of the United States recognizes the value of vanpooling with its many benefits to working Americans, businesses, the economy and the environment. Internal Revenue Code Section 132(f)(4), Title IX, section 910 of TEA-21, the Transportation Equity Act - known as the Commuter Choice initiative, establishes tax benefits for vanpools and their employers in order to encourage the practice.
Tax-Free Benefit — Employers may subsidize transit or vanpool fares up to $280 per month, in addition to current compensation. Employees receive the benefit tax-free. Employers get a full tax deduction and do not pay payroll taxes or other costs on the amount provided.
Pre-Tax Benefit — Employees can use up to $280 per month or $3,360 per year of their gross income, usually before taxes, to pay for transit or vanpool fares. Employers save on payroll taxes and other costs that they would normally pay on the amount set aside by their employees — usually in the range of a 10% savings. Since pre-tax use of employees' salary is not subject to cafeteria-type use and plan restrictions, this program is easy to structure and administer.
Share the Fare — Employers may also combine the two above options. An employer may provide a portion of the tax-free benefit and let the employee use of his or her pre-tax salary to pay for the remaining portion of the tax-free amount. In this case, the employer obtains a tax deduction and exemption to avoid payroll taxes for the amount set aside by the employee. The latter savings helps offset the cost of the tax-free benefit.
Parking Cash-Out - Employers can offer their employees the option to "cash out" of their existing parking space. For example, if Company A subsidizes parking for their employees at $60/month, a parking cash-out program would allow employees to choose from the following options: (1) keep the parking space worth $60/month, (2) give up the parking space and receive $60 extra each month in taxable salary, or (3) receive $60/month in tax-free transportation benefits to pay for transit or vanpooling. Cash-out programs often work best for employers that pay separately for parking and for organizations with parking shortages or plans to expand parking facilities.
All federal employees in the Washington , D.C. , area are eligible to receive employer-paid transit benefits up to $280 per month. Including the Department of Defense, who provides this program to all military and civilian employees.
A transit commuter benefit program is simple to administer. It does not require extensive record keeping. Passes, vouchers, or similar fare media are generally available, and employers need only keep a record of the purchase of the media. In other cases, the employer must maintain records that reasonably demonstrate that any cash it pays to employees is being used to cover their actual transit or vanpool commuting costs.