As the world emerges working in its bedrooms, garages, and laundry rooms to congregate again in offices and other workspaces, the cost of a commute comes back into focus. Commuter benefits are a great way for employers to help employees pay for these costs with pre-tax or post-tax money, potentially saving them hundreds of dollars in tax liabilities for pre-tax plans.

The average American spends over $8,000 commuting every year, so offering employees a way to save can have a real financial impact. Each year, the IRS sets limits for how much can be set aside for commuting pre-tax, but tax savings can be significant for both employees and employers. Pre-tax benefits can reduce employees taxable income and save employers an average of 7.65% on payroll taxes, per employee per contribution.

Some cities and one state (New Jersey) already require companies with offices in their jurisdiction to offer employees a commuting benefit. Here are the details:

• Bay Area: Only employers with 50 or more full time employees are required to provide commuter benefits.

• San Francisco: Only employers with 20 or more employees in SF or nationwide are required to provide commuter benefits.

• Richmond and Berkeley: Only employers with 10 or more employees are required to provide commuter benefits.

• District of Columbia: Only employers with 20 or more employees are required to provide commuter benefits.

• New York City: Only employers with 20 or more employees are required to provide commuter benefits.

• Seattle: Only employers with at least 20 employees; employees are eligible if they worked in Seattle at least an average of 10 hours per week in the previous month are required to provide commuter benefits.

• New Jersey: Only employers with 20 or more employees are required to provide commuter benefits.

• Philadelphia: Only employers with 50 or more employees that are working at least 30 hours a week in the city of Philadelphia are required to provide commuter benefits.

• Los Angeles: Only employers with 50 or more employees are required to provide commuter benefits.

• Greater Chicago area: Employers with 50 more more employees located within a mile of a transit stop served by the in the six counties served by the regional transit authority.

Even if commuter benefits aren’t required where your business is located, giving your employees more ways to save could help your company retain workers and stand out to potential employees. Allowing you to attract talent you might not otherwise. Companies can offer commuter benefits in the form of a tax-free, employer-paid subsidy, a pre-tax employee-paid subsidy or a combination of both.

Pre-tax commuter benefits vs. post-tax commuter benefits

There are two different ways you can support your employees’ commutes: through a pre-tax commuter benefit and a post-tax commuter benefit. You can offer both or one as they cover different types of expenses. 

The pre-tax commuter benefit account allows employees to contribute money pre-tax for commuting expenses like mass transit and parking near the office up to the monthly IRS limit. Since the money is contributed pre-tax, this benefit can potentially save employees hundreds of dollars in tax liabilities.

The pre-tax benefit accounts typically function like this:

1. The employee selects how much they would like to contribute to their account each month, up to the IRS limit.

2. The employer takes the appropriate amount out of their paycheck and deposits it into their commuter benefit account.

3. The employee pays for their commuting expense either with an employer issues debit card or mobile wallet or pays for the expense and then submits the appropriate documentation for reimbursement.

4. The employee can receive the reimbursement either via check or direct deposit into their bank account.

Typically unused balances in pre-tax commuter benefit accounts roll over from year-to-year as long as the employee is at the company. However, if an employee quits, retires, or is terminated, they should have a set period of time within which to use their account balance on expenses incurred prior to the date that the employee leaves. Any other funds left in the account will be returned to the employer upon the employee’s departure.

The post-tax commuter benefit is 100% employer-funded. Employers can choose how much they will allocate to each employee and the types of expenses they will reimburse for. Employers can choose what happens to unused balances at the end of the plan term or if their employees leave the company. All reimbursements employees make through the post-commuter benefit plan are subject to income tax.

Employees typically sign up for commuter benefits during open enrollment.

Types of benefits for commuting employees

Whether you drive your car, take public transportation or ride your bike, there is a commuter benefit for you.

Drivers: If you drive your car to work, you can use your account to pay for daily or monthly parking (garages, lots or meters) near your workplace or mass transit station. Carpoolers: If you use a qualified carpooling service like Vanpool you can use your commuter benefits to pay for this cost. Mass Transit Riders: Your commuter benefit can be used to pay for your work-related fares for the: bus, subway, train, trolley, ferry, water taxi, and light rail.

Typically, pre-tax commuter benefits come in the form of either a Mass Transit Account or Parking Account. Unfortunately, they’re usually not offered as one all-encompassing commuter benefits account that can be used for any qualified expense.

Mass Transit Accounts

If your employer offers a mass transit account, the first step to signing up is to decide how much you’d like to contribute on a monthly basis. If you take the same route every day to the office, this calculation should be simple: simply multiply the roundtrip fare by the number of days you commute. If it’s not the same every day or differs from week to week, go back and look at your costs over the past year and estimate based on that.

Once you decide how much you’d like to contribute (up to the monthly contribution limit), and use the digital platform offered by your benefits administrator to register for and manage your account.

Parking Accounts

If your employer offers a parking account, you’ll follow the same process as above. Estimate what you’ll need to save to cover your parking costs (up to the monthly contribution limit) and use your benefits administrator’s digital platform to sign up for and manage your account.

Types of post-tax benefits for commuting employees

Gas stipend: One way employers can support employees’ commutes, especially in an area where mass transit isn’t an attractive or available option, is to offer employees a gas card or gas stipend. A gas card could be used to fill up their tank directly and a gas stipend would require employees to submit receipts for reimbursement.

Tolls: If employees must cross bridges or pass through toll booths to get to work, reimbursing for those toll costs through a post-tax commuter benefit account could be a valuable way to support their commute.

Car insurance: The average cost of car insurance in the U.S. is $2,008 a year but employees could pay more or less depending on where they live and how far they must commute. Allowing employees to reimburse for all or part of their car insurance premiums could be another valuable way to support their commute.

Company cars and vehicle Stipends: If your employees must drive a lot as part of their job, like offering a company car or a vehicle stipend to help cover the cost to purchase or lease their own vehicle are post-tax commuter benefits that might make sense. Typically in these scenarios, employees pay for taxes and the maintenance on their car.

Bikers: If you ride your bicycle to work, you can use up to $20/month for equipment and repairs.

Uber, Lyft or Taxi Rides: Offering a stipend for employees to use these services for their work commute can be a helpful benefit, especially if they are required to work late or early mornings when mass transit might not be as readily available. Another thing employers can do is secure credits in bulk from these services to offer employees reduced-fair rides.

Bike Share Programs: Employers can offer employees reimbursement for fees associated with using one of the bike share services like Lime, Citibike or Indego.

Mileage Reimbursements: If an employee travels for work in their personal car, it’s customary for the employer to reimburse the employee for this travel (the current IRS reimbursement rate is $0.67 per mile). As a post-tax commuter benefit, employers can extend this policy to workers’ commute.

Hybrid Charging Stations: As a way to encourage the purchase and use of electric vehicles, and support employees’ commutes, employers can offer employees a stipend for hybrid and electric vehicle charging stations. 

Paying for qualified expenses with your benefits

There are many ways to pay for qualified expenses using your commuter benefits. If your benefits administrator issues a debit card linked to your account, you can simply use it at approved vendors like your mass transit operator (e.g. SFMuni), or rideshare company.

Other ways to pay for your commute include: vouchers, smart cards, transit passes and direct payments to vendors like the garage with which you have a monthly parking arrangement.

Some benefits administrators have strict policies about how you use your commuter account to pay for certain expenses. For example they might require you to pay for mass transit costs using your benefits debit card. So make sure you read the details of your benefits plan before you start using your account.

Reimbursing yourself for qualified expenses with parking benefits

If you’re receiving a cash reimbursement for work-related parking expenses for which you’ve paid out of pocket, you need to file a claim with your benefits administrator. Although the process for filing a claim may differ between companies, you will probably need your receipts and to file your claim within 180 days of incurring the expense.

Most administrators have a digital portal through which you can file your claim for parking reimbursement.

What else you need to know about your commuter benefits

• They can only be used for expenses related to your commute. Parking, transit and other travel expenses used for personal reasons or for your spouse or dependents aren’t eligible.

• Depending on your provider, you can always transfer your balance between Parking and Mass Transit accounts. However, Lively's commuter benefits enable you to do so, enabling a more flexible approach to commuting.

• You can only claim up to the amount that’s in your benefits account at the time you submit the expense for reimbursement.

How to bundle your commuter benefits with other employee benefits

One of the great things about offering commuter benefits, is that you can offer them alongside any other type of flexible or health benefit without restriction. In order to decide which style of commuter benefit to offer, and which additional benefits you want to include in your package, you must first determine the problems you’re trying to solve and the goals you’re trying to achieve with your benefits package. Here are a couple of ideas for bundles.

Goal #1: You want to improve company culture. 

Bundle: Pre-tax Commuter Benefit + Lifestyle Spending Account (LSA). If you want to improve company culture and you feel that getting employees back into the office is a big part of that initiative, then offering a commuter benefit will go a long way toward not only encouraging employees to come back into the office, but providing them with an incentive to do so. The LSA is a benefit that allows employers to give employees post-tax money to pay for everyday life and personal expenses like gym memberships, food at the office, "last mile" commuting expenses, pet care, hobbies and more. Pairing these together shows employees that the company cares about the financial impact commuting has on their lives and who they are outside of work.

Goal #2: You want to help alleviate financial stress among employees.

Bundle: A Pre- or Post-tax commuter benefit + Health Savings Account (HSA) +  LSA. Make sure to pick the commuter benefit that will have the greatest financial benefit for the greatest number of employees. The HSA allows employees to save pre tax money to pay for qualified medical expenses like deductibles, copays, coinsurance requirements and prescriptions. Employees can also invest their contributions to grow their health safety net at a faster rate. The LSA can be structured to pay for expenses that employees would pay for anyways.

Goal #3: You want to support employees that live far away from a city center.

Bundle: Post-tax commuter benefit + LSA + Medical Travel Account (MTA). With a post-tax commuter benefit you can target the types of expenses employees that live away from mass transit are more likely to incur. You can structure your LSA to pay for the specific everyday expenses that these employees would find helpful (e.g. they might not have a major gym nearby but do want to build a gym at their home) and use the MTA as a way to help them travel to the medical care they need.

There are many bundles you can create in order to build the best and most impactful benefits package for your workforce. The best way to choose the best benefits is to survey your employees about the issues they’re facing and the concerns they have outside of work, ask them how they feel the current benefits package addresses their needs and then compare these answers with the usage data from your current plans.

Build a robust employee benefits program

Commuter benefits are part of a well-rounded benefits package that both supports employees and saves employers money. Complementary benefits include High Deductible Health Plans (HDHP) paired with Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs).

Lively is the health and wellness benefits platform that gets it right the first time, every time. To find out how Lively can help your company offer a robust benefits package, reach out today!