Financial incentives have a significant impact on commute decisions. In 1998, the Transportation Equity Act for the 21st Century (TEA-21) amended the federal tax code to create financial incentives related to commuter benefits for employers and employees. The following section outlines these Commuter Choice Tax Incentives. In addition, several states now offer tax credits for Commuter Choice programs. Contact an attorney or accountant for specific tax guidance.

• Employer-Paid Transportation Benefits . Employers can pay for their employees to commute by transit or vanpool, up to a limit of $110/month. With this arrangement, employees get up to $110 in a tax-free transportation benefit. Employers get a tax deduction for the expense and enjoy savings on payroll-related taxes. Employers have found that providing transportation benefits offers significant savings over offering the equivalent dollar value to employees in the form of a salary increase.
• Employee-Paid, Pre-Tax Transportation Benefits . Employers can allow employees to set aside up to $110/month of pre-tax income to pay for transit or vanpooling. Employers save money overall since the amount set aside is not subject to payroll taxes. Employees save money, too, since the amount of an employee's salary set aside for transportation benefits is not subject to income tax, up to the specified monthly limits.
• Shared-Cost Transportation Benefits . Employers can share the cost of transit or vanpool costs with employees-and everyone can receive valuable tax savings. With this approach, employers can provide a portion of the cost of taking transit or vanpooling as a tax-free benefit and allow the employee to set aside pre-tax income to pay for the remaining amount of the benefit (up to the specified limits).
• Parking Cash-Out . Employers can offer their employees the option to "cash out" of their existing parking space. For example, if Company A subsidizes parking for their employees at $60/month, a parking cash-out program would allow employees to choose from the following options: (1) keep the parking space worth $60/month, (2) give up the parking space and receive $60 extra each month in taxable salary, or (3) receive $60/month in tax-free transportation benefits to pay for transit or vanpooling. Cash-out programs often work best for employers that pay separately for parking and for organizations with parking shortages or plans to expand parking facilities.

Source: Commuter Choice