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When employers are highly motivated to reduce demand for parking, commuter benefits are often just the start of their search for solutions. We’ve already written about some of our favorite companion benefits, from on-demand bike repair to Guaranteed Ride Home. Let’s talk about shuttles, and the implications for pre-tax commuter benefits.
When your office is on top of a train station, giving employees a transit pass is likely sufficient to get most of them to leave their cars at home. When an office is just beyond transit, perhaps a mile from a train station, private shuttles can be an effective solution to bridge the network. Employers, or often their Transportation Management Associations (TMAs), can step up to privately fund shuttles that complete the transit network.
For an example, look just across the river from Boston. Kendall Square is a bustling innovation district that draws employees from around the region. Kendall Square has a train station, but many commuters coming from the north would have to make multiple transfers to reach their final destination and might feel more inclined to drive. Because parking is so expensive, Kendall Square employers pay their TMA to operate shuttles on their behalf. These shuttles provide an easy alternative to driving, keeping both parking costs and traffic down in the neighborhood. The shuttles, called EZRide, are free, open to the public, and serve local residents and college students as well.
When employees take part in traditional commuter benefits, they’re using part of their income, before it is taxed, to pay for their monthly transit expenses. This is called a “pre-tax” transit benefit. Their employer can also offer their employees a tax-free subsidy to help with monthly transit expenses. For example, an employer can provide each employee a monthly subsidy of $50, and let employees use their pre-tax salary to pay for the rest of their transit expenses. As long as the total amount of pre-tax and subsidy does not exceed the monthly limit set by the IRS ($340 in 2026), the employee is not taxed on the value of these benefits.
How do shuttles, which cost employers and their associations to operate, factor into that tax-free monthly limit? Does the cost of operating the shuttle count towards that monthly limit? Read on to learn about four common ways shuttles are operated, and how those choices affect commuter benefit limits.
If a company spends, let’s say, $100,000 to run a shuttle service each month, and it serves 1,000 employees, should each employee be taxed as if they’re receiving a $100 transit benefit?
Yes. Because the shuttle is being provided for its employees’ commutes, this should technically be treated as an employee benefit. Fortunately, in this example, the value of the shuttle ride for each employee is $100 per month, well within the monthly limit of $340, so the employer would not need to involve payroll or benefits tracking.
What if that shuttle is open to the public?
Consider the EZRide in Kendall Square. These aren’t just part of the employers’ facilities, they’re an amenity for the whole community. Because this is not being operated for its employees’ commutes and is free for all, this would not be treated as an employee commuting benefit and would not count towards employees’ monthly transit benefit.
What if only the public pays a fee to ride the shuttles, and employees ride for free? In that case, yes, the employer is providing an additional subsidized transit benefit in the amount of that discounted fare.
Consider a situation where a shuttle costs $5 per trip for the general public, but is free for employees. An employee that makes 40 trips in a month (two trips a day, five days a week, four weeks a month) is receiving a $200 transit subsidy from their employer each month. Because the public fare represents a reasonable value of the shuttle service, in this case the employer would not need to distribute the cost of shuttle operations to individual employees. And if the subsidized shuttle fare is the only transit benefit the employee receives, it is well below the monthly tax-free limit of $340, and the employer could provide that subsidy tax-free to their employees without having to pay any FICA withholding, or manage any special reporting or payroll integrations.
What if the employee is benefiting from both a private shuttle and public transit?
Continue with the example from #3 above (free fares for employees and $5 for the public). What if the employee is also setting aside $150 or more a month for a public transit pass? Because the monthly pre-tax transit contribution limit is only $340, the employee and employer would need to pay taxes on that last $10.
To stay compliant with pre-tax limits, employers in this situation will need to either track the number of trips taken by each employee, or simply assume the employee rides a round trip every work day. This is typically done with either a digital badge system or paper on a clipboard, and the results will have to be integrated into the employers’ payroll or benefits system for periodic reporting. The employer will have to ensure that the total expense of the travel by each employee by both transit and the shuttle does not exceed the monthly cap of $340, and, if it does, treat the amount exceeding the cap as taxable compensation.
The whole point of running shuttles is to close gaps, not create new ones. Fortunately, there’s a simple solution to managing pre-tax transit spending in combined shuttle/transit systems, and it takes advantage of the latest transit fare payments technology.
If you ride transit in New York, Chicago, Miami, San Francisco, DC, or any of dozens of other US cities, you might already be taking advantage of open payments. Public transit is aggressively investing in open payment systems, which allow riders to tap their own debit or credit card to board, rather than having to transfer funds onto a separate agency-specific smart card. Transit agencies love open payments because it reduces the number of expensive systems they have to manage, and riders love it because it makes transit as easy to buy as a cup of coffee.
Commuter debit cards neatly complement these open payments systems. Rather than purchasing transit passes from different agencies or operators and distributing them to individual employees, benefit administrators are able to load cash value onto a debit card they know is restricted only for use on qualified transit services. It’s then up to employees to decide how to spend it. Modern card features, such as mobile wallet compatibility and real-time reports for administrators, make these even easier to use.
Outfitting shuttles with fare validators that accept open payments, and distributing transit benefits on commuter debit cards, closes the compliance gap in all the cases we explored above, while creating minimal hassle for administrators and riders alike.
Have more questions? Get in touch with our team to learn more about pre-tax benefits, open payment systems, and commuter debit cards.
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