Commuter benefits are not a new employer-sponsored benefit, but they are receiving new attention with increased calls from employers to bring employees back into the office. This is a good thing. Commuter benefits can improve the quality of life for employees by giving them a way to save money on their commute, and they can provide employers with an incentive to bring employees back to the office, as well as a tax break if offering pre-tax commuter benefits.

In this post we answer the five most asked questions about commuter benefits from account holders and administrators. For a more in depth look at commuter benefits, check out our Commuter Benefits Guide. 

Employees’ top five questions about commuter benefits 

What is covered under pre-tax commuter benefits?

Pre-tax commuter benefit accounts cover a narrow range of commuting costs, which are defined by the IRS, which also sets a monthly contribution limit for commuter benefits. With a pre-tax commuter benefit account, account holders can reimburse for expenses associated with commuting via public transportation, vanpooling, and parking for their personal car.

Covered public transportation costs include fares for: bus, ferry, train, subway, metro, and cable cars. Expenses associated with parking the account holder’s personal car must be for a lot or space near the office, a spot near where the employee is conducting business for that employer, or near a mass transit center or vanpooling pick-up point. 

Is gas, fuel, or tolls covered under pre-tax commuter benefits?

Gas, fuel, and tolls for account holders’ personal vehicles can’t be reimbursed for through a pre-tax commuter benefit account. If employers decide they want to provide employees with assistance in the cost of gas, fuel, or tolls needed to commute, they can offer a post-tax gas stipend, for example through a Lifestyle Spending Account. Employees would have to pay income taxes on the amount they receive.

How do commuter benefits save me money?

Employees’ contributions to pre-tax commuter benefit accounts are made before income taxes are assessed. If the employer offers a post-tax commuter benefit, employees will receive extra cash for expenses like bike repair and rideshare services. Employees will have to pay income taxes on any reimbursements they receive from a post-tax commuter benefit account.

Can I redeem my commuter benefits for cash?

No. That’s why it’s important that employees allocate the amount of money they believe they will spend each month on their commute. Commuter benefits do roll over from month to month and year to year so they won’t lose their unused contributions as long as they stay at the company. Once employees leave the company, they will lose any unused commuter benefit funds.

What happens if I don’t use my commuter funds?

Commuter benefit contributions don’t expire at the end of the plan year, so account holders can retain access to previously unused commuting expenses. However, once the employee leaves the company, they lose access to their previously made contributions.

Administrators’ top five questions about commuter benefits 

Where are commuter benefits mandated?

Most employer-offered benefits are regulated by federal or state law. But commuter benefits are a little different. Since an employee’s commute is dependent on local infrastructure and can help to determine local traffic patterns and congestion, pre-tax commuter benefits can be required on a local level for employers that have employees located in the region. 

The following are the cities and regions that require employers to offer commuter benefits to their employees:

1. San Francisco. If an employer has a San Francisco office and at least 20 employees nationwide, they must offer those employees a commuter benefits plan. 

2. Northern California Bay Area. Companies that have at least 50 employees located in the Bay Area must register for the Bay Area Commuter Benefits Program. 

3. New York City. If an employer has a New York City office, and at least 20 full-time, non-union employees, it must offer those employees a pre-tax commuter benefits plan. 

4. Washington, D.C. If an employer has a Washington, D.C. office and at least 20 employees living in the city, it must provide its employees with a pre-tax commuter benefits plan, an employer-paid direct benefit for taxable reimbursements, or provide private transportation for its employees.

5. Seattle. Employers with a Seattle office and at least 20 employees must provide those employees with a pre-tax commuter benefits plan.

6. Richmond, CA. Companies with a Richmond location and at least 10 employees who work an average of 10 or more hours per week, must provide a pre-tax commuter benefits plan, a taxable, employer-paid reimbursement for commuting expenses, or private transportation. 

7. Berkeley. The city of Berkeley requires all California-based employers with at least 10 locally based employees to offer said employees commuter benefits. Those benefits can come in the form of a pre-tax commuter benefits plan, an employer-paid, taxable reimbursement for commuting expenses, or private transportation for those employees. 

8. Los Angeles. The city of L.A. requires all California-based employers with between 50 and 249 employees at a single location to offer commuter benefits to all full time employees at that worksite.  

9. Philadelphia, PA. Employers with an office in Philadelphia, PA with at least 50 employees must offer a mass transit commuter benefit plan to eligible employees. Eligible employees are those that work an average of 30 hours a week or more and have been employed with the company for at least a year. The city offers exemptions to this policy for remote employees, government entities. 

10.  New Jersey. Employers with an office in New Jersey and at least 21 employees are required to provide a pre-tax commuter benefit to non-union employees.  

11. Chicago and surrounding areas. Illinois requires employers with 50 or more full-time employees located within a mile of a transit route in the six-county Chicago Regional Transit Authority area to offer pre-tax commuter benefits to employees.

This information is current as of September 2024. Commuter benefits are becoming a popular fringe benefit so more cities and regions could approve legislation requiring certain employers to offer a plan to their employees.

What is covered under pre-tax commuter benefits?

Pre-tax commuter benefits can only be used to reimburse for parking and mass transit fares up to the monthly IRS contribution limit. The parking spot or garage must be near the office, a mass transit center, or a vanpool meet-up point. Eligible mass transit fares include: bus, metro, subway, train, ferry, and cable car.

What are the tax implications of offering a pre-tax commuter benefit?

Offering a pre-tax commuter benefit can help employers save money on their taxes. Since employee contributions are deducted from their paycheck prior to income taxes being assessed, it lowers their taxable income. This, in turn, lowers the employer’s FICA payment.

Can employees redeem commuter benefits for cash?

No. Once deposited into the commuter benefits account, contributions must be used to reimburse or pay for eligible commuting expenses. Unused contributions can be rolled over from month to month and year to year, but if an employee leaves the company, they forfeit their remaining balance.

Do employers have to contribute to their employees' commuter benefits account?

No, but many do in order to encourage employees to come to the office. Employers can also choose to offer an employer-funded, taxable benefit that reimburses for commuting expenses that are not otherwise covered by pre-tax commuter benefits, but they don’t have to.

Offer modern commuter benefits with Lively

Lively is your partner in crafting the most impactful benefits package for your people. We offer both pre- and post-tax commuter benefits that meet employees where they are and include sought after features like tap-to-pay, mobile wallet, and micro mobility. We make bundling benefits a breeze by offering onboarding and ongoing support, transparent pricing, and easy, consolidated dashboards for easy administration. Employees with multiple Lively administered benefits will also experience an intuitive user experience, a stacked benefits card, and top-rated support. If you’re ready to uplevel your benefits, reach out today.