Who wouldn’t like to save money on commuting with the rising cost of living? The Philadelphia City Council recently passed commuter benefits legislation to save businesses and their employees thousands of dollars on commuter costs. The law is expected to be signed by its mayor. When that happens, Philadelphia will join a list of cities requiring businesses to provide commuter benefits to their employees.
What are commuter benefits?
Commuter benefits allow employees to save money tax-free from their paychecks every month and spend it on public transportation like trains, rideshares, and qualified parking expenses. They are offered through employers and are mandated by local, state, or other governments in some places.
Employees who use commuter benefits can have a significant financial advantage over those who do not have access to them. An employee who earns $55,000 per year and uses the maximum amount of commuter benefits takes home approximately $1,500 more than someone with the same salary and commuting costs, but either has no access to commuter benefits or doesn’t use them.
Philadelphia’s new law
In Philadelphia, workers can save anywhere from $138 to $540 annually by using pre-tax dollars for transit passes. Employees who work more than 30 hours for the same employer are eligible for the benefit.
The savings will come through a pre-tax payroll deduction for mass transit fares or qualifying bicycle expenses such as bicycle storage and maintenance. Employers can also provide workers with a preloaded public transit key card for commuting expenses.
By saving money tax-free, employees reduce their federal taxable income. In 2022, the IRS will allow employees to set aside up to $280 per month for commuter benefits.
Businesses also benefit financially from commuter benefits. Since employees are saving money from their paychecks, the payroll tax decreases. A company with 50 employees using commuter benefits can save about $24,000 annually.
Who must offer benefits in Philadelphia?
Businesses with 50 or more full-time employees must offer a commuter benefits program, according to the new law passed in Philadelphia. For the law to apply, at least 50 employees must live in the city. The measure goes into effect on Dec. 31, and commuters would be eligible for the benefit beginning in January 2023.
The measure was passed, in part, to attempt to increase ridership on public transportation. The Southeastern Pennsylvania Transportation Authority (SEPTA) has been at approximately 50 percent below average since pre-pandemic, according to the Philadelphia Business Journal and Philly Voice. It can also help reduce traffic congestion and emissions. Philadelphia has a zero emissions goal by 2050.
If you are a Philadelphia employer, you can offer an employee-paid pre-tax roll deduction, or you can provide an employer-paid direct benefit such as a public transit key card or transportation shuttle. Employers save by not having to pay payroll taxes on the amount set aside for transportation costs. Commuter benefits are also a great way for employers to recruit and attract talent.
Commuter benefits are mandated in other areas
Other cities have adopted similar commuter benefit programs, including New York City, Los Angeles, Seattle, and Washington, D.C. However, each local or state law can be slightly different.
In Seattle, for example, businesses with 20 or more employees are required to offer commuter benefits. Employees are eligible for commuter benefits if they work at least 10 hours or more per week. Any tax-exempt organization does not have to offer commuter benefits.
Employees can use commuter benefits for ridesharing on Uber or Lyft, buses, ferries, rail, vanpools, and water taxis. Employees can get prepaid debit cards, transit passes, be paid the money directly from their employer, or have other options to receive commuter benefits.
New Jersey is the first state to mandate commuter benefits for some businesses. Its law is like Seattle’s.
The rest of the commuters who get benefits can use them for buses, rail, ferry, vanpool, water taxis, ridesharing, and qualified parking.
Here is a list of other areas that mandate commuter benefits:
- San Francisco (Businesses with 20 or more employees)
- Berkeley, CA (10 or more employees working 10 hours per week)
- Richmond, CA (10 or more employees working 10 hours per week)
- Los Angeles (50 or more full-time employees working an average of 30 hours or more per week)
- Seattle (20 or more employees working 10 hours per week)
- New York City (20 or more full-time employees)
- New Jersey (statewide; 20 or more employees working 10 hours per week)
- San Francisco Airport (Employees working 20 or more hours per week)
- Federal Government (Capitol Region federal employee commuters; not to be confused with the D.C. law)
- Bay Area Air Quality Management District (9 counties; offers four options to employees)
- San Francisco Bay Region (50 or more employees; work-from-home employees added in 2022)
If you’re in Philadelphia and have questions about how commuter benefits will impact your business or want to start offering them to employees, schedule a meeting today. We’ll be happy to review all your options with you.
