Federal and State Tax Resources
Provide transit passes or vanpool subsidies as a tax-free benefit or let employees pay the full monthly cost using pre-tax income. Unlike other benefits, these are not subject to complex reporting requirements. Employers also may qualify for a 30 percent state tax credit on the amount of employee transit expenses that your company subsidizes. Note: this credit applies only to the portion paid by the company.
When you offer transit passes pre-tax, it reduces your payroll and the accompanying taxes you pay. Your savings are equivalent to 7.6 percent of the employees' contribution.
For employees, when they pay for their own transit pass through payroll deduction, they receive a pre-tax advantage of 28 to 43 percent.
Answers to some common tax questions
Q: Can we take advantage of the federal and state pre-tax option and the Minnesota corporate tax credit?
A: Yes. Note: If you write off the full transit benefits as a business expense and claim the 30 percent state tax credit in the same year, you must report the credit as income the following year. Employee-paid transit benefits are not eligible for the tax credit.
Q: Do these programs affect employees' personal tax returns?
A: Only by reducing their take-home earnings. Employees are not required to claim a transit benefit on person income tax forms.
Q: Can I add transit benefits in our Section 125 Cafeteria Plan?
A: No. Transit benefits must be handled separately but are much simpler to administer. Transit benefits (Fringe Benefits) fall under Section 132.
Q: Can an employee receive transit passes and parking on a pre-tax basis?
A: Yes, transit, vanpool or qualified parking expenses up to $255 per month are eligible as a pre-tax deduction. Visit irs.gov and see Publication 15-B for the latest figures.
Additional tax resources
Federal
Minnesota Department of Revenue
- Corporations 651-297-7000
- Partnerships and S Corporations 651-296-3475
- Proprietors 651-296-3781