Smart Choice is the name for BCTA’s transit commuter benefits program. The choices consist of the extensive network of services offered by the Beaver County Transit Authority to get you to work. These choices are smart because the program saves both employers and employees money. The following information will describe how you too can make a “Smart Choice.”
It really does pay to ride transit!
Smart Choice is a program that, for little or no cost to employers or employees:
- Provides tax savings for both parties
- Serves as a recruiting tool
- Improves morale and reduces absenteeism
- Reduces employee commuting costs – such as fuel, parking, and tolls
- Increases free time and productivity
- Delivers transit passes directly to the place of employment
The Tax Benefits
Smart Choice, the Beaver County Transit Authority’s commuter benefits program, is based on federal tax laws designed to encourage the use of transit for trips to and from work. Employers may allow employees to pay their own transit commuting costs using pre-tax income. In other words, employers do not have to pay for the benefit directly, but rather can choose to subsidize their employees’ transit commuting costs fully, partially, or not at all. Regardless, both employers and employees save money by reducing their overall tax burden.
For example, in 2016 the maximum monthly transit benefit was $255 per month ($3,060 per year).
|A sample illustration of these savings is as follows:|
|Annual transit set aside||$3,060.00|
|Federal income tax savings||$856.80 (assuming a 28% tax bracket)|
|FICA (Social Security & Medicare) Tax Savings||$234.09 (at 7.65% withholding)|
|State income tax savings||$93.94 (at 3.07% withholding)|
|Local income tax savings||$30.60 (assuming a 1% local tax rate)|
|TOTAL SAVINGS TO EMPLOYEE||$1,215.43|
|ACTUAL COST OF $3,060 IN TRANSIT COMMUTING COSTS||$1,844.57|
Click here for current maximum monthly savings amounts: IRS Publication 15-B
Smart Choice Fare Payment Options
Employees participating in our transit commuter benefits program can use their pre-tax income, or employer-provided subsidy, or a combination of both, to purchase the following types of prepaid fare media:
31-Day Pass, 10+1 Trip Pass, 7-Day Pass, Fare Cards
Please see the “Passes and Tickets” section of our website to learn more about these fare payments methods, and determine the option that best suits you.
For the employer
Tax savings are available if the employer subsidizes, in whole or in part, the transit commuting costs of their employees. For example, an employer could purchase a quantity of transit passes from local transit agencies and offer them for sale at little or no cost to their employees who register for a transit commuter benefits program.
In the above scenario, the employer’s cost of providing transit commuter benefits can be deducted as a normal business expense. Moreover, unlike ordinary wage payments, employers do not have to pay their share of federal payroll taxes on any transit commuter benefits provided. This payroll tax savings alone is generally more than enough to cover any costs involved in administering the benefits program.
Tax-free transit commuter benefits are a method by which to assist employees, while contributing to reduced congestion and pollution in the region. Employees who use transit to commute arrive at work relaxed, because they’ve avoided the stress and aggravation of rush-hour congestion. In short, transit commuter benefits are a terrific fringe benefit this is affordable and environmentally responsible.
Because federal tax law exempts the first the maximum allowance per month in transit benefits from federal income and payroll taxes – and generally state and local taxes as well – the employer can effectively provide their employees with a tax-free transportation bonus.
As an alternative, employers can elect to share the costs of commuting by transit with their employees by directly subsidizing part of the transit commuter benefit and allowing employees to pay for the remainder of the benefit using pre-tax income.
For the employee
Employees participating in a transit commuter benefits program can also pay for their own transit commuting costs with pre-tax income. This is accomplished through a simple payroll deduction from the employee’s paycheck each pay period.
The maximum, allowance per month of transit commuting costs paid for by the employee will be completely exempt from federal income taxes – and generally state and local taxes as well – and your employer will benefit from payroll tax savings on this pre-tax income. This can save the employer and employee up to $800 per year in taxes!
Pre-tax deductions for transit commuting costs need not be burdensome. They are, in fact, often much less than the deductions taken for medical benefits or contributions to a retirement plan.
How it works
A transit commuter benefits program is simple for an employer to administer. It does not require extensive record keeping, nor does it require a minimum number of employees to participate. When employer-subsidized transit passes are given or available for sale to employees, the employer need only keep record of the purchase of the passes and any monies collected. Where employees pay their own transit commuting costs through pre-tax income, the employer must be able to demonstrate that any payroll deductions taken are actually being used to cover transit commuting costs. This can be accomplished by the employee providing receipts to the employer.
Although transit commuter benefits cannot be offered as part of a “cafeteria” plan, employers may utilize the same or similar forms and administrative procedures for a transit commuter benefits program that they use to administer their “cafeteria” plan. There are a number of third parties – such as WageWorks, TransitChek, TransitCenter, or Sodexho – that are available to administer a transit commuter benefits program on behalf of the employer.
In the future, the maximum monthly transit commuter benefit as defined by the federal tax code may rise to account for inflation. An increase in the benefit can only occur if inflation is sufficient to raise the benefit by a full multiple of $5.
Who is eligible?
Private employers, nonprofit organizations, and public agencies can provide transit commuter benefits to employees, tax-free. Employees of the federal, state, or local government, as well as members of the armed forces, are also eligible to receive these benefits. However, self-employed individuals, partners, 2-percent shareholders of “S” corporations, sole proprietors, and independent contractors are not eligible to participate under the federal tax code. As an employer or employee, you may want to consult a tax advisor to determine your eligibility.