Washington State Tax Benefits
If your company is providing commute trip reduction incentives, it may be eligible to receive Washington's Commute Trip Reduction Tax Credit.
- Eligible companies and property managers (those paying business and occupation (B&O) or public utilities taxes (PUT)) can receive tax credits of up to 50% of the amount paid for each employee's transit, ridesharing, carsharing or non-motorized commuting.
- Up to $100,000 is available for each company and property manager per fiscal year.
- Tax credits have a cap of $60 per employee.
- An application must be submitted between January 1 and January 31, following the calendar year in which the applicant made the commute trip reduction incentive payments. The credit is available on a first-come, first-served basis while each year's funding lasts.
More information is available on the Washington State Department of Revenue's webpage.
Federal Tax Benefits
Per federal law, employers have several ways to offer their employees a commute benefit free of payroll taxes:
- Tax-free, employer-paid subsidy
- Pre-tax payroll deduction
- A combination of both
This law applies when the employer, or qualified third party, delivers the commute benefit to the employee in the form of a pass, ticket book or voucher.
If the Employer Pays
If the employer pays and delivers the benefit directly to the employee in the form of a pass, ticket book or voucher:
- The employee receives the tax-free benefit of the employer-subsidized pass, ticket book or voucher up to $130* each month.
- The employer has a tax deductible business expense for federal taxes.
If the Employee Pays
If your employee pays and buys or receives the pass, ticket book or voucher through the employer:
- The employer can allow the employee to pay up to $130* each month through a pre-tax payroll deduction.
- The employee saves federal withholding and FICA payroll taxes on the amount deducted.
- The employer saves paying FICA on the amount deducted.
- If the cost of the transit pass or voucher exceeds $130, any additional cost can be deducted from employee wages on an after-tax basis.
Benefits services firms can handle the administration of pretax programs. Examples of firms that offer such services include Accor/CommuterCheck, Benefit Resource, Flex-Plan Services and WageWorks.
For additional information, check out King County Metro's Pre-tax Tool Kit. Employers are also highly encouraged to consult a tax advisor for detailed information regarding the tax implications of commute benefits and incentives.
*When the employer and employee share the cost of the pass, ticket book or voucher, the total combined tax-free and pre-tax amounts may not exceed $130 per month per employee.