Legislation and Reform

Commuter Program Changes for 2018

The Tax Cuts and Jobs Act (H.R. 1) (the Bill), which overhauls America's tax code to deliver historic tax relief for workers, families, and job creators was passed by both the House and Senate on December 20, 2017. There was discussion and confusion about the employer taxability of transit and parking programs following the release of H.R. 1.

Recently, WageWorks received confirmation from the White House Chief Counsel's office that pretax salary reductions taken by an employee are NOT a deductible business expense for the employer. In fact, IRS Publication 15-B for 2018 was delayed pending this decision. Publication 15-B for employers will be out in a week or two.

As WageWorks first communicated:

Transit and parking (commuter) programs: Only the employer's deductibility of costs for these plans has changed. Industry-standard, pre-tax benefits for transit and parking programs for employees are still both available and tax-free. The only change is that employers can no longer deduct costs for subsidized or paid commuter benefits. The impact to the employer is the cost multiplied by the new lower corporate tax rate minus FICA savings.

Here's the impact:

In 2017, I get paid $5,000 and salary reduced $500 (between transit and parking). Employers get a wage deduction for $4,500 plus a deduction for qualified transportation of $500. They additionally save FICA taxes on the salary reduction amount. The amounts are tax free to the employee.

As of January 1, 2018, I get paid $5,000 and salary reduced $500 (between transit and parking). Employers get a wage deduction for $4,500 but they lose the deduction for qualified transportation of $500. The impact to employers, however, is likely de minimis as they are now paying the new lower corporate tax rate. They still save FICA taxes on the salary reduction amount. The amounts are tax free to the employee.

Here is a copy of the Tax Cuts and Jobs Act policy highlights with further information about the Bill.