In this setup, the employees receive transit or vanpool benefits completely free of all U.S. payroll and federal income taxes, up to $130 per month. The employer pays the full cost of the benefit and gets a deduction from its federal business income taxes for the value of the benefit.This option is one of the most appealing to employees and has the potential to decrease single-occupant vehicle driving. Therefore, it has the most impact on alleviating congestion and improving air quality and is a primary option in the Working For Clean Air program.
Under this program, employees may have up to $130 taken out of their current monthly pay before taxes are applied in order to pay for the cost of commuting by transit or vanpools. Employees would not pay federal income taxes or payroll taxes on the amount they set aside. Employers also would not pay U.S. payroll taxes or related payroll costs on the amount. This program costs the employer practically nothing except the costs associated with the administration of the benefit and saves them tax dollars. It also saves the employee tax dollars.
Under this option, employers may share the cost of commuting to and from work with employees, combining the two methods above. For example, the employer may offer $30 per month in benefits and allow the employee to set aside the other $100 as a pre-tax benefit (for a total of $130).
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