Transportation fringe benefits.Pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern parking, transit passes and commuter vans. In general, when an employer provides a benefit for its employees, the employees must include the value of that benefit in their compensation; this is especially true when the employees have the option of receiving either the benefit or its cash equivalent. Congress has carved carve v. carved, carv·ing, carves v.tr. 1. a. To divide into pieces by cutting; slice: carved a roast. b. out a number of exemptions and exceptions in the tax code from this general rule of includability for many types and amounts of benefits. Such is the case for certain transportation benefits. Employer-provided transportation benefits have been--and continue to be--very popular. Employers may give their employees a choice between receiving (taxable) cash or (tax-free) transportation benefits. Only when an employee chooses to receive the cash or when the value exceeds a specified dollar exemption limit is he or she required to include an amount in income. THE BENEFITS Qualified transportation fringe benefits fringe benefits, n.pl the benefits, other than wages or salary, provided by an employer for employees (e.g., health insurance, vacation time, disability income). include the following: * Transportation in a commuter highway vehicle, defined as any vehicle seating at least six adult passengers in which 80% of the mileage MILEAGE. A compensation allowed by law to officers, for their trouble and expenses in travelling on public business. 2. The mileage allowed to members of congress, is eight dollars for every twenty miles of estimated distance, by the most usual roads, from his is for travel between employees' residences and the place of employment and when at least half the adult seating capacity Noun 1. seating capacity - the number of people that can be seated in a vehicle or auditorium or stadium etc. commodiousness, spaciousness, capaciousness, roominess - spatial largeness and extensiveness (especially inside a building); "the capaciousness of Santa's is used for employees on such trips. * Transit passes, including any pass, token, farecard, voucher A receipt or release which provides evidence of payment or other discharge of a debt, often for purposes of reimbursement, or attests to the accuracy of the accounts. or similar item that entitles the employee to transportation on mass transit mass transit, public transportation systems designed to move large numbers of passengers. Types and Advantages Mass transit refers to municipal or regional public shared transportation, such as buses, streetcars, and ferries, open to all on a or in a vanpooling vehicle. * Parking provided to an employee on or near the employer's business premises or on or near a location from which the employee commutes using commuter highway vehicles, transit passes or car pools. Limits on the value of the transportation benefits allow employees to exclude certain amounts from income. For qualified parking, an employee need not report up to $175 per month from his or her gross income; for qualified employer-provided transit passes or vanpooling, the maximum exclusion is $65 per month. (Beginning in 2002, the base amount for transit passes and vanpooling will be increased to $100.) Thus, an employer may offer both parking and transit passes up to a maximum total benefit of $240 if employees drive from their homes to a central location (where they receive qualified parking) and then take mass transportation to the employer's offices. The employer must calculate, on a monthly basis, the value of the benefits provided to employees. If the fair market value of a benefit is more than the limit for any month for any employee, the excess must be included in that employee's gross income and wages (unless the employee pays the difference). In addition, the "unused" portion of a monthly exemption amount, if any, may not be carried over to subsequent months. POSSIBLE TAX-SAVINGS A qualified transportation benefit plan may provide a tax-saving opportunity for both employers and employees. Under such a plan, an employer allows its employees to purchase parking or transit passes on a pretax basis by reducing their salaries by the lesser of the value of the benefit or the applicable limit and then acting as the purchasing agent Noun 1. purchasing agent - an agent who purchases goods or services for another agent - a representative who acts on behalf of other persons or organizations for the employees. From a tax perspective, this arrangement may prove beneficial to both the employees and the employer. Because their compensation is reduced, the employees have to pay lower income and employment taxes. At the same time, the employer also may save payroll taxes Payroll Tax Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the U.S., both state and federal authorities collect some form of payroll tax. on the benefits for the employees under the FICA FICA abbr. Federal Insurance Contributions Act Noun 1. FICA - a tax on employees and employers that is used to fund the Social Security system income tax - a personal tax levied on annual income wage base ($72,600 for 1999) and Medicare taxes for all employees. Such a program does not increase the employer's costs (other than those for administration). For a discussion of current transportation benefits and other recent developments, see the Tax Clinic, edited by Robert Zarzar, in the July 1999 issue of The Tax Adviser. --Nicholas Fiore, editor The Tax Adviser |
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