Commute Tax Cut Impact
The tax reform laws as they relate to commuting benefits come into effect on January 1st, 2018 and all transportation programs are included and impacted. As an employer, the Commute Tax Cut eliminates deductions for commuter programs.
Below you will find a deep dive into my findings.
IMPACT on employers BENEFITS
The Tax Cuts and Jobs Act for the fiscal year 2018 significantly change how "taxes associated with employer-sponsored qualified transportation fringe benefit programs" are treated. Programs affected are those where employees are given allowances for parking or other forms of transportation to their workplace.
Most importantly, the Tax Cuts and Jobs Act revokes the "employer's deduction for most 'expenses' associated with qualified transportation programs." The Act maintains the deductions by the employer for travel expenses reimbursement brought on by the employee for their commute between home and work.
Broadly speaking, the Act arguably means that the "limitation on the employer's deductions on transportation fringe 'expenses'" is something that will stop employers from deducting the wages that are "paid to employees who choose to contribute pre-tax dollars" to their "qualified transportation fringe benefit program."
There is some good news though, as the Act does not materially change the "employee's tax treatment of employer-sponsored transportation benefits."
When do these changes come into effect
These changes come into effect after December 31st, 2017.
Which types of transportations are impacted
There are 2 small exceptions for employers:
1) expenses that are "necessary for ensuring the safety of the employee" from the employee's home to where they work will remain as a deductible.
2) employers are able to deduct payments or expenses or even reimbursements to employees “for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee’s residence and place of employment.” To be specific, the exclusion limit is $20 multiplied by the number of months that an employee has used a bicycle for a significant part of their commute between their home and where they work and also have not received any further "qualified transportation fringe benefit."
How significantly impacted are commute benefits
At a minimum, employers who offer vanpooling, parking or transit benefits should review how much value these benefits provide to employees. This review should be done with an employer's trusted tax and legal advisors and also with their employees. There will be a need for employers to make changes to their "qualified transportation plan documents" and "other informative documents" so that it reflects the changes in the benefit offerings.
For employees, they will continue to receive transit, parking, and vanpooling benefits that are offered by their employers on a "tax-free basis".
Based on what their employers previously offered as benefits and what changes their employer has made, employees may end up "spending more post-tax dollars on parking and commuting to work" in the upcoming years.
For comparison, in 2017 under current IRS limits, employee transit benefit programs allowed employees to use their pre-tax dollars and allowed employers to "deduct their contributions" of:
1/ $255 per employee per month in transportation expenses.
2/ $255 per employee per month in parking expenses.
3/ $20 per employee per month for biking-related expenses.
In 2018, the tax-excludable limit for parking and transportation expenses will amount to $260 per month while the exclusion for types of bicycle expenses would stay at $20.
The overall Industry effect
Approximately 76% of companies will be affected as they pay for most, if not all, of their employees' transportation. Over the next 10 years, taxpayers are also projected to save $17.7 billion as they are no longer subsidizing commuter plans. This can amount to tax savings of almost 1% of the tax bill whose price tag is $1.5 trillion. This can also have an effect on employees driving into work as it will get more expensive for some commuters since the tax code is removing the $255 yearly benefit that some companies received provided they subsidized their workers' parking costs.
To summarize, based on the research done above, the tax reform laws as they relate to commuting benefits have come into effect after December 31st, 2017. All transportation programs are impacted with 2 exceptions. These exceptions relate to employee safety and bicycle-related transport. As an employer, the Commute Tax Cut eliminates deductions for commuter programs.