Employers may exclude up to $115 from wages per employee per month tax-free for providing transit passes to employees for mass transit commutes that occur via rail, bus, or ferry. A transit pass is any pass, token, fare card, voucher, or similar item entitling a person to ride, free of charge or at a reduced rate.
The transit passes must be purchased through a bona fide reimbursement arrangement or via direct payment for transit passes by the employer. Cash payments to employees may only take place if transit vouchers are unavailable, if vouchers could only be issued by charging a fare media charge, if vouchers that may be exchanged for transit passes are not available, or direct payment for transit passes by the employer is not possible.
Employees receive the transportation (commuting) benefit free from payroll taxes. The benefit may be provided at (1) the full cost of the employer, (2) employees may reserve income on a pre-tax basis to pay for the transit/vanpool benefit, or, (3) employers and employees may agree to share the transit/vanpool expense. The deduction from the employee's paycheck would be pretax and not part of other cafeteria style plans.
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