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Commuter tax benefits

Offering employees transportation benefits is not only a smart retention and recruitment strategy, but also a great way for employees and employers to save on taxes and reduce costs.

Consult with a tax advisor or specialist to learn more about your organization’s options and coordinate with your benefits or payroll provider to determine how pre-tax deductions will be managed.

IRS benefits

Employers and employees both save on federal taxes when employers provide benefits like ORCA Business Programs. Employees can spend pretax dollars (up to $300 per month) on a public transportation benefit. The employer can in turn avoid paying FICA tax on those salary dollars.

The result is a valuable employment benefit that encourages public transportation while saving both employees and employers money.

Read the IRS Employer's Tax Guide to Fringe Benefits

Washington State tax credit

Washington State provides a tax credit for employers and property managers who provide employees with commute trip reduction incentives. The credits apply toward business and occupation (B&O) tax or public utility tax (PUT) liability.

Ride sharing, public transportation, car sharing, and non-motorized commuting are all eligible to provide credits equal to 50 percent of the incentive payment, not exceeding $60 per employee per year. No employer or property manager may receive more than $100,000 credit per fiscal year.

Explore WA State Department of Revenue tax incentive programs

Seattle-based employers

Companies located in the City of Seattle with 20 or more employees must comply with the Commuter Benefits Ordinance. The ordinance requires employers to offer employees an option to deduct pre-tax dollars to pay for transit expenses or employers must provide a transit pass that is wholly or partially paid by the business.

This law reduces carbon emissions, traffic congestion, and saves money for both employers and employees.

FICA tax

The Federal Insurance Contribution Act (FICA) institutes a 15.3% tax (rate for 2023) that funds Social Security and Medicare. Half is paid by employers through a payroll tax (7.65%), and half is paid by employees (7.65%).

If an employer wishes to pay an employee $100,000, they must set aside $107,650 ($100,000 salary, and $7,650 in FICA tax) to pay that salary level. The employee will receive $92,350 after the FICA tax is deducted. Providing a transportation fringe benefit allows the value of that benefit to be deducted from both the employer and employee side of the salary total used to calculate the FICA tax.

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