#Commuter Benefits

Chicago leads the way: Pre-tax commuter benefits now mandatory

October 10, 2023

In a move that aims to provide significant savings for commuting employees, The State of Illinois is mandating a law that requires certain employers to offer pre-tax commuter benefits to their full-time workforce in order to mitigate transit expenses and encourage energy efficient travel. This bold legislative step is poised to reshape the way companies in the Windy City approach employee perks and taxation, fostering a more sustainable and cost-effective commuting ecosystem.

The Transportation Benefits Program Act

The Transportation Benefits Program Act will go into effect on January 1st, 2024, offering transit benefits to all of Cook County, as well as dozens of suburban and exurban townships throughout the Chicago Metropolitan area. The mandate signals a commitment to reducing the financial burden of commuting for employees, as well as the environmental (and mental) burden of an estimated 108 million miles traveled by car each weekday in Chicago.

Under the new law, employers with 50 or more employees are now required to offer their full-time workforce (35+ hours per week) the option to set aside up to $300 per month of their pre-tax income, divided by pay period, to cover commuting expenses. This will cover various modes of transportation such as covering a transit pass for Metra (a regional transportation authority), CTA (Chicago Transit Authority) or Pace buses (a fixed route transit service), as well as covering micromobility transit methods like bikeshares and e-scooters. There is also a provision providing the option for employers to offer a parking benefit as well, but it is not included in the mandate, as the overall purpose of the bill is to encourage use of public transit. The areas in effect include all of Cook County, as well as:

  • West Deerfield Township
  • Downers Grove Township
  • Grant Township
  • York Township
  • Vernon Township
  • Joliet Township
  • Charles Township
  • Milton Township
  • Plainfield Township
  • Avon Township
  • Frankfort Township
  • Warren Township

Why Pre-tax Commuter Benefits Matter

Commuting costs can take a significant bite out of an employee’s income. By allowing employees to use pre-tax dollars for their commuting expenses, The State of Illinois is providing a powerful financial incentive for individuals to utilize sustainable transportation options. This move not only eases the financial strain on employees but also promotes environmentally friendly commuting methods, reducing traffic congestion and pollution in the city. The overall benefits remain to be seen, but city dwellers will likely be the first to notice the reduction in noise pollution, accidents, and improvements in air-quality, as fewer and fewer cars make their way into the city.

The Impact on Employers

At first glance, it might seem like the pre-tax commuter benefits mandate places an additional burden on employers. However, when analyzed more closely, it becomes evident that this law offers substantial benefits to companies as well.

Tax Savings:

  • Employers can save on payroll taxes since employees’ taxable income is reduced when they participate in the program. Pretax payroll deductions ultimately save companies money in the long run.

Employee Attraction and Retention:

  • Offering a pretax transit benefit can make a company more attractive to potential employees and help retain current ones. Employees value perks that can ease their financial burden, and this employee benefit program can be a significant selling point.

Reduced Transportation Costs:

  • Encouraging the use of public transportation and carpooling can lead to decreased demand for parking space, potentially saving companies money on parking-related expenses.

Environmental Impact:

  • Companies that offer pre-tax commuter benefits can also demonstrate their commitment to sustainability, which can be an essential factor in attracting environmentally conscious customers and investors.

Increased Productivity:

  • Commuters who drive to work are often enduring the mental burden of traffic and congestion. The mental strain causes driving commuters to be less productive, less satisfied, and less creative when at work. A daily commute as a passenger can immediately alleviate stress, which makes for an easier day at the office!

For Employees, It’s All About Savings

For Chicago area employees, the benefits of this mandate are clear: significant savings. By setting aside money from their income for commuting expenses before taxes are applied, employees can reduce their overall tax liability. This means more take-home pay, which can make a substantial difference in their monthly budgets.

How It Works

Participating employees can allocate a portion of their pre-tax income, up to a maximum limit set by the IRS, (the limit for 2023 is $300) to cover commuting expenses. These expenses can include the cost of commuter train passes like the Metra, city bus and ‘L’ train passes from CTA, or bus lines in surrounding townships like the Pace bus, and even bikeshare and e-scooter subscriptions. While employers have the option to offer pre-tax allocations for parking benefits, this is not a part of the mandate, and not the focus of the law.

The Savings

As an employee, you can save an average of $700 a year, or more when you set aside $300.00 a month to pay for your transit commuting expenses.

A Step Towards a Cleaner and Greener Chicago

Beyond the financial savings, the Transportation Benefits Program Act also aligns with Chicago’s broader sustainability goals. By encouraging employees to use public transit, carpools, and other sustainable transportation options, the city aims to reduce traffic congestion and lower carbon emissions. This not only benefits Chicagoans but also contributes to the city’s efforts to combat climate change and create a cleaner, healthier environment.

Compliance and Deadlines

Employers subject to this mandate should take note of the compliance requirements and deadlines. The law goes into effect beginning January 1st, 2024 – although companies do have the option to begin offering pre-tax allocations before then.  It is crucial to provide employees with the necessary information and enrollment options.

How Can Edenred Help?

Illinois’ Transportation Benefits Program Act is a progressive step towards creating a more sustainable and financially equitable commuting experience for its residents. By offering employees the opportunity to reduce their taxable income while promoting eco-friendly transportation methods, this law benefits both individuals and the city.

Employers should view this mandate as an opportunity rather than a burden. Not only does it help attract and retain top talent, but it also showcases a commitment to environmental responsibility and community well-being. As The State of Illinois paves the way for pre-tax commuter benefits, other states may follow suit, ushering in a new era of cost-effective, sustainable commuting in urban areas throughout the nation.

If you’re looking to work with a benefits provider that offers commuter benefits, Edenred is what you’re looking for. Our innovative solutions combine quality and competitive pricing. We offer:

  • Easy Online Administration
  • Programs for Companies of All Sizes
  • In-house Customer Service
  • Direct Employee Delivery
  • Simple Sign-Up Process
  • Seamless Transitions from Other Providers

Schedule a meeting with us today to learn more about our program and get you started before the deadline approaches.

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