When you think of benefit programs, the traditional elements of health, dental, and life insurance may spring to mind. For example, here we talk quite a bit about Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). But it’s important to remember that transportation benefits are a crucial component of retaining and attracting top talent. Many companies offer some version of transit and Commuter Benefits to stay relevant in a highly competitive market.
What’s interesting is that in some cities mass transit benefit programs are moving from an optional component to a mandatory element. For instance, this summer the City of Philadelphia passed a Commuter Ordinance (Ordinance) requiring certain employers to provide a commuter benefit program. Read on to learn specifics about transportation benefits, the Ordinance, what it could mean for your firm in the Philadelphia area, and broader information on setting up a transit program.
What are transportation benefits and how do they work
Before getting into the specifics of the Philadelphia transit benefit requirement, let’s first review the basics. With transportation or commuter benefits, employees can set aside their pre-tax earnings to pay for their commutes. Commuting by public transit, ridesharing, or cycling may qualify commuters for the program. Parking costs may also be eligible when they are used for a carpool.
By not paying taxes on commuter elections, commuters can increase their take-home pay—money that they would otherwise spend on whatever they want. Companies also benefit from payroll tax reductions. Since employees’ commute expenses are not taxable, employers can exempt those expenses from payroll taxes.
When it comes to transportation benefits, there are a few basic categories of benefits.
1. Reduced-cost or free transit passes. Passes for local transportation networks that are fully paid or subsidized are an excellent way to encourage their use. In addition to the positives of reducing pollution and traffic congestion, commuters can save a lot on vehicle maintenance and insurance.
2. Carpooling and vanpooling. For businesses not easily accessible by public transportation, carpooling has become a popular strategy. Company-sponsored carpooling is an inexpensive, convenient method of linking company facilities with transit hubs to make commuting more environmentally friendly.
3. Transportation incentive programs. Employers can also offer commuters incentives simply for choosing to travel between their work and home in more sustainable ways. For example, employees who log a minimum number of public transit commutes during a given month, quarter, or year may receive an employer subsidy.
Now that you know the basics, here’s what you need to know about the new City of Philadelphia requirements.
Philadelphia requires commuter transit benefit programs
On June 9, 2022, the City of Philadelphia passed Bill NO 220337 to amend Title 9 of the Philadelphia Code, which requires employers to provide a qualified mass transit or bicycle commuter benefit program. Certain employers—those who employ 50 or more covered employees—must provide a mass transit or bicycle commuter benefit program, beginning December 31, 2022. The goal of the initiative is to help residents save money on commuting, reduce traffic congestion and emissions, and boost transit ridership.
What does the Philadelphia Ordinance require for bikes and mass transit benefit programs?
At a high level, the bill specifies that companies offer at least one of the following employee commuter transit benefit programs:
Standard pre-tax transit (not parking) benefit or pre-tax bike benefit that is funded through payroll deductions. This program must be consistent with the Internal Revenue Code at benefit levels at least equal to the maximum amount that may be deducted for such programs.
An employer-paid standard tax-free transit benefit. In this case, employers supply a Fare Instrument—such as pre-paid commute cards or vouchers—for an employee’s mass transit expense. Again, this program must be offered at benefit levels at least equal to the maximum amount that may be deducted for such program.
Any combination of the two program types listed above. This means employers can offer both pre-tax transit benefits, pre-tax bike benefits, and an employer-paid tax-free transit benefit.
In addition to the benefits described above, the bill also requires employers to give employees educational materials to help them understand the new benefits. This includes compliance information and instructional materials, but the bill language does not give further specifics on what the materials have to cover.
What else do I need to know about the Philadelphia Ordinance?
It’s worth noting that in this case the distinction between pre-tax and post-tax benefits is key. For bike benefits, employers should know they can offer a post-tax subsidy for bicycle expenses through Luum by HealthEquity.
All of this is tracked in Luum, so employers can see how much of the available subsidy is being used by employees. Employers can also offer post-tax reimbursements of bicycle expenses through a Lifestyle Spending Account (LSA). In both cases, the employer determines the subsidy or reimbursement amount on a post-tax basis for eligible bike expenses—maintenance and storage.
How does the bill define an eligible bicycle program?
These are reasonable expenses incurred by a Covered Employee who regularly uses a bicycle for commuting to and from work. It includes the purchase, maintenance, repair and storage expenses related to bicycle commuting, as allowed under the Internal Revenue Code, 26 U.S.C. § 132(f)(1)(D) and (f)(5)(F).
Managing transit benefits for your business
The transit benefits can be managed in-house or outsourced to a third party. If you decide to do it in-house, a member of your team will coordinate transit benefits for your team members with the appropriate transit agencies.
Here’s why it’s advisable to use a third party for commuter benefits:
Your team saves time and avoids hassle—the transit agency is responsible for the whole process.
Employees enjoy a seamless process by ordering their transit cards online.
Employees gain access to 24/7 member services to answer questions that would otherwise go straight to the benefits manager.
HealthEquity has several Commuter solutions that support a commuter benefits program:
TransitChek: A simple monthly transit order solution. Employers bulk order pre-paid commute cards or vouchers. Appropriate pre-tax payroll deductions are made, and the cards or vouchers are mailed to the employer for distribution to employees. No contract or minimum participation is required, and we can get the program up and running within 10 days.
HealthEquity Commuter: Simplified administration or commuter benefits with a rewarding member experience. This solution gives employers access to nationwide coverage with an extensive commuter catalogue. Ordering and payment for members and administrators is easy and support is scaled through 24/7 member service. This program can be quickly implemented, and tax savings maximized through an extensive engagement program.
Reach out for assistance with your transportation benefits programs
As this is a new ordinance, it’s natural for you to have questions. We’re here to help employers meet the requirements of state and local ordinances. When you need assistance, we can help you quickly implement a compliant commuter program that helps employees save money on their commute. We’ll take care of unifying all aspects of the commute program—for an unrivaled employee and administrator experience.
HealthEquity does not provide legal, tax or financial advice. Always consult a professional when making life-changing decisions.
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