Pretax transit benefits allow employees to have commuting costs deducted tax-free from their paychecks while giving the employer the opportunity to save on payroll-related taxes. A tax prep service can work with you to determine if this program is appropriate for your business and how much both employer and employee stand to save by implementing it. Here’s a closer look at how these benefits work.

For Employees

By having their commuting costs deducted tax-free, employees can save as much as 40% on transportation. The amount is typically taken out of the employee's paycheck as a monthly deduction.

There are a few different ways an employer might supply employees with the necessary products paid for by their pretax transit benefits. The most common include issuing public transportation vouchers to employees or having the employer pay the provider directly, after which the provider gives the employee a pass, smart card, or another identification card for the month.

Pretax transit benefits can be used for public transportation, parking lots, car- and van-pools, and qualified ridesharing programs.

For Employers

With transportation costs coming out of employee paychecks tax-free, employers have less payroll tax to claim. In the course of a year, this can add up to a substantial amount, with an average annual savings of 7.65%. Offering this benefit is also an excellent way to attract new employees and retain longtime ones.

Starting a commuter benefit program in your workplace should begin with a visit to a tax prep professional to explore the various transit services approved by the IRS and just how much your business can save. Then it’s a matter of meeting with your finance department and other managers to decide which products make the most sense for your business, such as vouchers, smart cards, and direct payments to providers. Finally, you’ll simply need to promote the program among your employees.

To see if a pretax transit benefit program is right for your business, contact the tax prep professionals at JJR & Associates LLC. Serving the Metro Atlanta, GA, area, they offer tax, accounting, bookkeeping, and payroll services. They work with all types of small- and medium-sized businesses to find the financial solutions that provide a solid groundwork for success. Call (404) 437-7748 or visit them online to schedule a consultation with a tax prep professional today.