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If you’ve already read our popular Comprehensive Guide to Pre-Tax Transit Benefits, and are ready for more ideas, then you’re in luck. Read on to find out what post-tax benefits are, and how they can help your organization reach its transportation, environmental, and employee retention goals.
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When an employee receives a benefit from their employer, its value is usually accounted for in payroll either before taxes are calculated or after.
If the benefit is defined as an eligible pre-tax benefit by the federal government, then the employee can receive this benefit without paying taxes on it. For example, if an employee withholds earnings from your paycheck to go toward a 401K retirement account, that income being set aside for retirement isn’t taxed, which means it effectively gets a sizable (roughly 30%) discount. Or if an employer gives employees a free transit pass each month, as long as the value of that pass falls within the IRS limits on commuter benefits, the employee won’t be taxed on the value of that pass. These are called “pre-tax” benefits.
But what if the employee receives a benefit that is not exempt from taxes? Let’s say the employer gives each employee a $100 credit towards an ice cream cake each month. Unfortunately, the ice cream cake benefit isn’t an allowable pre-tax deduction, so the employee can receive the free $100 benefit, but would have to pay taxes on it as income.
Typically, an employer would start by enlisting the support of a third-party commuter benefits provider, and the provider would help the employer decide which benefits to offer. For post-tax benefits, the employer would also decide how much of the cost they want to cover for each benefit. Then the provider would work with each employee to elect and enroll in the benefits that work for them, and the provider would handle delivery and troubleshooting.
Per IRS Code Section 132(f), transit passes, vanpool, and parking can be paid for with pre-tax dollars. All other forms of transportation are eligible for post-tax spending. Examples from around the United States include:
We asked this question to 400 employers across several industries and across the United States in our most recent State of Commuter Benefits Report. We found that, even though these post-tax benefits aren’t required, employers choose to offer them. Some of the most popular offerings include the following:
In researching for our State of Commuter Benefits Report, we also asked why companies choose to invest in these programs. The top five reasons given were to:
No. There’s no limit to the value or number of post-tax benefits an employer can offer or an employee can receive.
No. Post-tax benefits are subject to income, payroll, and all other applicable taxes.
No. There are purely optional benefits, offered at the discretion of employers.
Yes. Often times benefits providers can help employees access exclusive discounts or savings, plus there’s added convenience in being able to get all transportation needs (pre-tax and post-tax) in one place.
Most employers work with a third-party benefits administrator to set up their pre- and post-tax benefits. These external administrators connect with each eligible employee to make sure they understand their options, and then work to fulfill any benefits that the employees elect to receive. Most third-party administrators charge a fee to provide this service.
Once the benefits are set up and the employees make their initial selections, it’s important to continuously communicate with current and potential employees about these options. Current employees might move, fall in love with biking, or change up their evening routine, all of which could impact their commute preferences. It’s also important to socialize these offerings to potential employees who are assessing opportunities.
Jawnt is a third-party commuter benefits administrator that makes it easy for employers to help their employees get to work. Jawnt’s user-friendly, human-powered platform handles enrollment, fulfillment, and support, ensuring employers and employees get the most out of their benefits. If you’re looking to enhance your traditional pre-tax transit benefits offering and bring bikeshare, scooters, bike repair, or even ice cream cakes to your employees as post-tax benefits, we’re here to help. To learn more, reach out to hello@jawntpass.com.
