Learn what a Commuter Benefit Plan (CBP) is and get a high-level overview of everything you need to know to understand this benefit.
Start your educational journey into this pre-tax account by expanding the questions in the left column you’d like to learn more about. Additional educational resources related to this section topic are available to the right.
A Commuter Benefit Plan is an employee benefit governed by Section 132(f) of the Internal Revenue Code. This benefit allows employees to pay for eligible workplace commuting expenses tax-free. When employees enroll in an employer-sponsored Commuter Benefit Plan Account, contributions are not subject to Federal, FICA, and most state taxes. So, by enrolling, employees bring home more money in their paychecks.
There are two types of Commuter Accounts: A Mass Transit Account and a Parking Account:
Employees can enroll in both a Mass Transit and a Parking Account. They must elect and contribute to accounts separately and cannot transfer funds between accounts.
The employer owns the account. If the account holder switches jobs, the money left in the account will be forfeited.
Since funds are for workplace commuting expenses, the funds in a Commuter Benefit account can only be used by the account holder.
By law, the following employees are not eligible to participate in a Commuter Benefit Plan:
By offering this account type, you’re providing your employees who enroll a 30% off coupon for their workplace commuting expenses.
*For illustration purposes only. Individual tax rates and maximum limits apply.
And the good news – the company saves, too! Social Security Tax (FICA) and Federal Unemployment Tax (FUTA) will not need to be paid on the tax-free salary deductions made by participants for these qualified workplace commuting expenses. In some cases, state unemployment and workers’ compensation taxes can also be avoided on these amounts. Additionally, offering fringe benefits like a commuter benefits plan tends to reduce retention and talent acquisition costs.
This section covers many of the key elements an employee would want to know before enrolling in a Commuter Benefit Plan account (with the exception of eligible expenses, which we’ll cover in-depth in Lesson 3). Expand the questions in the left column that you’d like to learn more about. Additional educational resources related to this section topic are available to the right.
Employees enroll during Open Enrollment by following the instructions provided by their employer. Employees are not required to re-enroll each year; elections will automatically roll until the employee requests a change.
Election changes can generally be made once per month depending on plan setup. The frequency, method, and monthly cut-off date may vary depending on the plan’s design. Unused funds automatically roll to the next month, and current elections automatically continue until the election is changed or stopped.
The IRS sets the maximum contribution limits each year. These can be found on BRI’s Plan Limits page.
The IRS maximum amount can be contributed to both a Parking and Mass Transit account on a pre-tax basis if an employee enrolls in both. Funds cannot be transferred between the two accounts.
Allowing post-tax contributions to be made will enable employees to pay for the total cost of their workplace mass transit/parking expenses with a single payment source if their costs exceed the IRS pre-tax limit.
Upon termination of employment, most employers allow their former employees to spend the remainder of their balance through their last month of work. At the same time, some have their employees forfeit the money back to the employer. Allowing employees to spend their remaining election after termination gives them peace of mind in a hectic time.
A big part of understanding CBPs is knowing what can and cannot be purchased under each account type. This section focuses on ways that CBP participants can spend their pre-tax dollars. Additional educational resources related to this section topic are available to the right.
Qualified mass transit must (a) occur in a commuter highway vehicle* and be used in connection with travel between a residence and place of employment. Examples include buses, subways, trains, streetcars, trolleys, ferries, and eligible vanpools.
*A commuter highway vehicle is a vehicle with a seating capacity of at least six (6) adults (excluding the driver), and of which at least eighty percent (80%) of the mileage for a year is reasonably expected to be used:
Qualified parking may include either:
Parking on or near property for residential purposes is NOT considered an eligible expense.
Per IRS regulations effective January 1, 2016, employees can spend their Commuter Benefit funds as they are deposited into their account in one of two ways:
Once the plan year starts, employees can begin using the funds in it. Funds are typically deposited into the account on a monthly or per-payroll basis, depending on the schedule determined by the employer when the plan was set up.
Funds in the account roll over from month to month and year to year. If an employee is terminated or leaves the company, the employer can decide when setting up the plan if they want to allow funds to be spent down or if they are forfeited.
Transit ordinances require certain employers to offer “qualifying” commuter benefits programs. They are designed to increase the use of mass transit by making transit benefits more widely available to employees. This section covers the specifics of these programs, including the location, compliance requirements, and fines for non-compliance. Additional educational resources related to this section topic are available to the right.
Los Angeles has several initiatives aimed at reducing single-occupancy vehicle use. Employers with 250 or more employees are required to register a plan with the South Coast Air Quality Management District to reduce emissions. Additionally, an ordinance is being implemented that requires employers with 50 to 249 employees to offer a qualified pre-tax transportation benefit.
Penalties will vary based on the employer’s size when filed and even the progress made toward reducing emissions. Employers with 250 or more must file with the South Coast Air Quality Management District. The Los Angeles County Metropolitan Authority oversees the ordinance affecting employers with 50 to 249 employees.
The San Francisco ordinance affects any business located in the City of San Francisco with 20 or more employees nationwide. The Bay Area ordinance affects every employer with 50 or more employees across the nine-county San Francisco Bay Area. Employers meeting the above criteria must provide one of the following:
Within San Francisco, those who fail to comply are subject to the disciplinary steps outlined below until compliance is achieved:
Additional information on compliance in San Francisco can be found within the Commuter Benefits Ordinance Rules and Regulations.
Employers that fail to comply within the Bay Area are also subject to corrective action, including financial penalties. The specifics are in the Commuter Benefits Program (Regulation 14, Rule 1).
Any business with employees in Seattle that employs at least 20 employees worldwide must do one of the following:
Employees working at least 10 hours a week must be offered the benefit. The ordinance does not apply to government entities and tax-exempt organizations.
The city modeled enforcement after existing ordinances, offering a 90-day grace period and then beginning punitive action if necessary. Details will be forthcoming, and updates can be found on Seattle.gov within the Commuter Benefits Ordinance section.
Effective December 31, 2022, the Employee Commuter Transit Benefit Programs will apply to any business with employees in Philadelphia that employs at least 50 covered employees (covered employee = any employee working at least 30 hours a week, excluding government entities, unpaid positions, or volunteers). Covered employees must be offered one of the following commuter benefits:
Employers violating the ordinance will have 30 days to comply, followed by a written warning. Following the written warning, additional failure to comply will result in a penalty fine between $150 to $300 per day.
Employers with 20 or more full-time employees working in the City of New York (including the five boroughs) must offer all full-time employees a qualified pre-tax transportation benefit. A full-time employee is defined by this ordinance as an employee working at least 30 hours per week.
The program must support all of the following transportation options:
Any employers violating the ordinance will be subject to an initial penalty fine of $100 to $250. After the initial penalty, employers have 90 days to become compliant. Failure to do so will result in a second penalty fine of $250. If a company is still found non-compliant after this, an additional $250 penalty fine will be administered every 30 days until compliance is achieved.
Every employer in the State of New Jersey that employs at least 20 people must offer all employees the opportunity to utilize a pre-tax transportation fringe benefit. An employee is identified as anyone hired or employed by the employer and reports to the employer’s work location. This mirrors the definition used in unemployment compensation law.
Employers meeting the above criteria must provide one of the following:
Employers violating the ordinance must pay an initial penalty between $100 and $250. After the initial penalty, employers have 90 days to become compliant. Failure to do so will result in a second penalty fine of $250. If a company is still found to be non-compliant, an additional $250 penalty fine will be administered every 30 days until compliance is achieved.
Two ordinances affect employers in DC: the Commuter Benefits Law and the Parking Cashout Law.
Every covered employer with 20 or more employees (all individuals employed by the employer; includes both full-time and part-time employees as well as non-profits) must offer one of the following:
Employers that fail to comply with this ordinance will be subject to an initial penalty. Employers are subject to a fine of $100 for the first violation, $200 for the second, and $500 for the third, up to a maximum of $800. This is pursuant to the Civil Infractions Act, DC Official Code § 2-1801.01 et seq.
Every covered employer with 20 or more employees who leases or offers parking to its employees at a free or subsidized rate must do one of the following:
Employers that choose to take no action will be subject to a $100 per month Clean Air Compliance Fee per employee offered parking benefits. All covered employers must file reports with the District Department of Transportation. The specific reporting and frequency varies based on the options employers choose to comply with.
The Transportation Benefits Program Act was signed into law on July 28, 2023, and goes into effect on January 1, 2024. Covered employers must comply with this Act by offering a pre-tax commuter benefit program for transit within the first 120 days of employment to all employees working an average of 35 or more hours per week.
Employers with 50 or more covered employees within a covered geographic area must comply. There are ~35 different municipalities that are subject to it. Employer locations must be within 1 mile of a fixed-route transit service. RTA must provide a searchable map of addresses to determine who must comply. All transit agencies will be required to market the existence of this program and this Act to their riders to inform affected employees and their employers.
Check out our other New to Benefits Education Series topics.