General Description
Many urban-based employers have difficulty recruiting qualified employees due to the burden transportation costs have on workers. The cost of parking can typically be $20-30 per day, commuter rail $5 –$10, and subway and bus $2-$4. On an annual basis, these expenses become quite significant: $5,000 - $7,500 for parking, $1,250 - $2,500 for commuter rail and $500- $1000 for subway and bus. In a highly competitive job market, employers usually have to account for these burdens in increased wages in order to attract desirable employees.
A recently introduced employee benefit addresses this burden in a cost effective way.
The Taxpayer Relief Act of 1997 gave employees the right to make pre-tax contributions – currently set at $175 a month – toward parking expenses. The Transportation Equity Act for the 21st Century allows employees to make pre-tax contributions – currently $65 per month and increasing to $100 per month in 2002 – to pay for mass-transit expenses such as monthly commuter train passes or van-pooling arrangements.
The impact is summarized as follows:
- Employees fund the benefit through salary reductions and reduce their taxable income
- Employers enjoy savings from reduced Social Security payroll taxes
- Employers incur a minor cost of administration
It is generally expected that this type of program will be highly attractive to employees, participation rates will be high, and payroll tax savings will outweigh administrative costs, similar to Section 125 Flexible Spending Account plans.
Company provided transportation benefits have received favorable clarification from the Internal Revenue Service as published in the January 27, 2000 issue of the Federal Register. The IRS’ proposed rules are presented in a question and answer format on the attached page for reference.
Overall, the legislation and IRS rules present a very favorable solution for employers who desire to attract urban commuters.
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