The following provides general information about allowable federal tax incentives. The employer pays for the benefit and receives the equivalent deduction from business income taxes. Employees receive the benefit completely tax free of payroll and income taxes, in addition to their current salary. Employers can pay directly for vanpool expenses or purchase transit passes for employees. Alternatively, they can reimburse employees if these passes are not available and the employee provides a receipt.
Employees save on income taxes since the amount is no longer reported as taxable salary.
Employers are able to reduce their payroll costs. Employers may share the cost of commuting with their employees. Employers can give their employees part of the transportation cost in addition to salary and allow their employees to set aside part of their pre-tax income to pay the remaining amount. Any amount over that is taxable. Chart showing typical annual tax savings.