Federal Framework for Commuter Benefits

Commuter benefits are employer-provided programs that allow employees to use pre-tax income for commuting expenses such as public transit passes, vanpooling, and parking fees. These programs are governed by federal regulations, and several state and local governments have implemented additional mandates to encourage their adoption.

Under Section 132(f) of the Internal Revenue Code, employers can offer qualified transportation fringe benefits on a pre-tax basis. For the calendar year 2025, the IRS has set the monthly exclusion limits at $325 for both qualified transportation expenses and qualified parking, an increase from $315 in 2024. These benefits enable employees to reduce their taxable income, leading to savings on federal income and payroll taxes. Employers also benefit from reduced payroll taxes on the amounts set aside by employees.

It’s important to note that the Tax Cuts and Jobs Act of 2017 suspended the tax-free status of qualified bicycle commuting reimbursements from January 1, 2018, through December 31, 2025. During this period, any reimbursements for bicycle commuting are considered taxable income.

State and Local Commuter Benefit Mandates

Beyond federal provisions, several state and local governments have enacted laws requiring employers to offer commuter benefits:

• New Jersey: In March 2019, New Jersey became the first state to mandate that employers with 20 or more employees offer pre-tax transportation benefits. This law applies to all employers in the state, regardless of sector, and aims to reduce commuting costs for employees while promoting the use of public transportation.
• New York City, New York: Effective January 1, 2016, the city requires employers with 20 or more full-time employees to provide pre-tax transit benefits. This mandate covers various forms of public transportation, including subways, buses, and ferries.
• San Francisco Bay Area, California: The Bay Area Commuter Benefits Program, effective since 2014, mandates employers with 50 or more full-time employees to offer commuter benefits. Employers can comply by offering pre-tax benefits, employer-paid benefits, or other options that encourage the use of alternative transportation.
• Seattle, Washington: As of January 1, 2020, Seattle requires employers with 20 or more employees to provide pre-tax commuter benefits. This ordinance is part of the city’s efforts to reduce traffic congestion and environmental impact.
• Washington, D.C.: The D.C. Commuter Benefits Law, effective since 2016, requires employers with 20 or more employees to offer transit benefits. Employers can comply by providing a pre-tax option, an employer-paid benefit, or shuttle service.

These mandates are designed to promote the use of public transportation, reduce traffic congestion, and support environmental sustainability. Employers in these jurisdictions must ensure compliance by implementing the required commuter benefit programs.

Compliance Considerations for Employers

Employers should take the following steps to comply with federal, state, and local commuter benefit regulations:

1. Assess Applicability: Determine whether your business is subject to any state or local commuter benefit mandates based on location and employee count.
2. Implement Qualified Programs: Establish a commuter benefits program that aligns with federal tax guidelines and meets any additional state or local requirements.
3. Communicate with Employees: Inform employees about the availability of commuter benefits, including how they can enroll and the potential tax advantages.
4. Maintain Records: Keep detailed records of employee participation and the benefits provided to ensure compliance and facilitate reporting.

By proactively managing commuter benefit programs, employers can enhance employee satisfaction, contribute to environmental sustainability, and take advantage of available tax incentives.

For more detailed information on specific state and local mandates, employers should consult the respective legislative texts or seek guidance from legal counsel specializing in employment law.