What is a Transportation Benefit Program?
Tax savings for you and your employees. A Section 132 Transportation Program lets employees set aside a certain amount of each paycheck into an account - before paying income taxes. During the year, participants have access to this account for transit and parking expenses.
When employees use tax-free dollars to pay for these expenses, they realize an increase in their spending power, and substantial tax savings.
The company saves too - about 8% (FICA match) on every dollar employees contribute to the program.
Transportation Benefit Programs redirect a portion of the participant's paycheck to pay for transit passes, parking, and commuter highway vehicle expenses. Although these "qualified transportation fringe benefits" cannot be included as part of your cafeteria program, they work in much the same manner. During the year, employees are reimbursed from this account as they incur transportation expenses. Reimbursements to employees are tax-free. For a complete list of transportation and parking expenses that qualify for reimbursement, click here.
Transportation Benefit Programs were first added to Section 132 in the Energy Policy Act of 1992, and then later amended in 1997 to allow employers to redirect an employee’s salary in order to pay for these benefits.
Transportation Benefits include the costs that employees might incur in their regular commutes to and from work. Under Section 132, the employer can redirect a portion of the employee’s salary to pay for such expenses on a pre-tax basis. While it may seem like just another benefit covered under a Cafeteria Program, by law, Section 132 benefits cannot be offered under a 125 Program. There are some distinct differences between the two programs as well:
- There are monthly dollar limits set by law. Any amount reimbursed over those statutory amounts must be included in the employee’s taxable income.
- Special rules apply to how and when benefits must be calculated.
- Unused amounts may be carried forward, but never refunded.
- No written program document is required, although employers and TPAs may want to put the specifics of their program in writing.
Like a Section 125 Cafeteria Plan, Section 132 benefits do not apply to partners and 2% S corporation shareholders. In addition, independent contractors are not entitled to qualified transportation expenses.
The Advantages of a Transportation Benefit Program.
- Save payroll taxes. You will save 8% or more on every dollar your employees redirect to the Transportation Benefit Program. (This is true for employees earning less than the maximum amount taxed for social security.) For an employer tax-savings example, click here.
- Increase take-home pay. You can increase your employees’ share of transportation expenses without reducing their take-home pay. For an employee tax-savings example, click here.
- Cushion transportation and parking rate increases. Many employers are passing transit expenses along to employees. A transit program can be implemented with a change, and lessen the impact on an employee's paycheck.
- Cut your retirement program expense. Since profit sharing, 401(k) and pension program contributions are based on employees' taxable salaries, your retirement expenses may be reduced.
- Save on other insurance premiums. Contributions for other coverages (like workers' comp. or disability) may be reduced because they are based on employees' taxable salaries.
- Program administration fees are deductible. Administrative costs are tax deductible and can be paid by you and/or your employees.
The portion of salary which an employee directs to the Transportation Benefit Program is not taxed. The employee will save:
Federal income tax.
State and local taxes (where applicable).
Social security tax (assuming the employee's salary is below the maximum social security wage base).
Your employee's savings will depend on the amount directed to the Transportation Benefit Program and the employee's tax rate.
What happens to the money that an employee puts into the Transportation Benefit Program?
For commuter highway vehicle transportation and qualified parking expenses, the employee’s redirected salary is "banked" by the employer in an account maintained for the employee. Qualified parking expenses incurred by the employee are reimbursed tax-free from dollars "banked" in the account.
If the full amount is not used by the employee before the end of the program year, the left over amount is carried forward to the next year.
How to implement a Transportation Benefit Program.
Program Consulting.
Upon receiving your application, a program specialist will contact you about program options.
Program Setup.
The setup kit includes "signature-ready" custom program documents and forms and a checklist for program implementation. For existing programs, the service also includes a program review and amendment, if needed.
Employee Enrollment Assistance.
This service includes educational materials such as a PowerPoint presentation, brochures, and enrollment forms (also available in electronic formats, including e-mail and internet-enabled enrollment services). Confirmation of election letters, claim forms, and instructions for filing are provided to all participants.
Employee Account Management.
Employee contributions are collected for each pay period and added to employees’ account balances. Daily services include account balance tracking, claims adjudication, and claims payment by check or direct deposit.
Participant Assistance.
Employees have 24-hour access to their accounts at ezflexplan.com/jpeat. Employee statements are included on claim reimbursements and on demand.
Annual Program Compliance.
Services include reconciliation and reporting of employee account balances.
You can start a FlexTrip Program at any time.
Plus, you can have a short program year for the first year so that future program years coincide with either your fiscal year, calendar year, or other benefit programs. The choice is yours.
Since employee participation is vital to the success of this program, we recommend your program be implemented no sooner than one month after the FlexTrip application is submitted. We will educate and enroll your employees while you simply watch the savings multiply for you and your employees.
|
Employee Paycheck Without A Program |
||
Salary |
$ 2,000 |
 |
FICA, federal, state taxes |
-$ 500 | |
Transit Expenses |
-$ 65 | |
Parking Expenses |
-$ 180 | |
| Net Pay Without A Program |
$1,255 | |
 |
||
Employee Paycheck With A Program |
||
| Salary | $ 2,000 |  |
| Transit Expense* | -$ 65 | |
| Parking Expense* | -$ 180 | |
| Adjusted earnings | $ 1,755 | |
| FICA, federal, state taxes | -$ 450 | |
| Net Pay With A Program |
$ 1305 | |
*Paid through the Transportation Benefit Program.
Note: Actual savings may vary depending upon specific tax situation. Social security benefits could be
affected.
|
Example of Employer Savings |
||||
|
XYZ Company has 10 Employees |
Without a |
With a |
||
| Annual payroll | $ | 300,000 | $ | 300,000 |
| Transit Expenses | 0 | $ | 2,340 | |
| Parking Expenses | 0 | $ | 15,120 | |
| Taxable Payroll | $ | 300,000 | $ | 282,540 |
| FICA Tax (7.65%) | $ | 22,950 | $ | 21,614 |
Savings |
0 |
$ 1,336 |
||
Note: Actual savings may vary depending upon specific tax situation. Social security benefits could be affected.
Transit Passes: A pass, token, fare card, voucher or similar item entitling a person to transportation on mass transit facilities or provided by a person who transports people for compensation or hire in a vehicle which seats at least six adults, excluding the driver.
Qualified Parking: Parking provided on or near the employer's business premises or at a location from which the employee commutes by carpool, commuter highway vehicle, etc.
Commuter Highway Vehicle: Transportation provided by an employer to an employee, in a vehicle which seats at least six adults (excluding the driver), in connection with travel between the employee's home and work, provided that 80% of the vehicle's mileage is reasonably expected to be for transporting employee from home to work or on trips where at least half of the adult seating capacity is filled by employees.
Expense Limitations:
Transit Passes
$105.00 per month for the calendar year 2005.Qualified Parking
$200.00 per month for the calendar year 2005.Commuter Highway Vehicle
$105.00 per month for the calendar year 2005.
- Walking to work.
- Bicycling.
- Carpooling.
- Rollerblading to work.