Give a raise to your Employees

1. Give a raise to your Employees And it won’t cost your company a dime.

2. Pre-Tax Commuter Benefit: Quick Course Presented by: Gayle Delanty Susan Whitmore

3. Today’s Agenda • Define pre-tax commuter benefit • Answer the question, why an employer would want to give a pre-tax benefit • Provide simple steps to implementing a pre-tax benefit • Hear about an employer who has implemented the benefit

4. How could your employee (Joe) gain from a pre-tax commuter benefit? • Save money on monthly bus pass • Enjoy the convenience of getting bus pass at work • Be reminded monthly that his employer is providing him a benefit

5. Monthly Tax Savings for Joe using Pre-tax Income for a Transit Pass *For purposes of this example, Joe is married and his wife earns $36,000 a year. They have no children, don’t own their own home, and have no other sources of income or deductions.

6. Monthly Tax Savings for Joe using Pre-tax Income for a Transit Pass *For purposes of this example, Joe is married and his wife earns $36,000 a year. They have no children, don’t own their own home, and have no other sources of income or deductions.

7. Joe’s Actual Savings Joe saves $6.20 in FICA and $20.00 in Fed withholding - a total of $26.20 in tax savings each month. Joe’s $81 transit pass, less the $26.20 tax savings, effectively costs him $54.80, a 33% savings.

8. How could your company gain from allowing Joe a pre-tax commuter benefit? • Enhance employee wage and benefits package • Provide a visible and valued employee benefit at no or low cost • Save nominally on FICA taxes (for Joe $74.40 per year, for 100 employees $7,440 per year)

10. What is the Pre-tax Commuter Benefit? • Allowed by the federal tax code since 1998 • Employee-paid but requires employer involvement • A specified amount of employee salary is reserved before payroll taxes are deducted to buy transit or vanpool fare media and or qualified parking

11. Section 132(f) vs Section 125 • Pre-tax benefits programs are treated under two sections of tax law: • 132 (transportation) • 125 (health care and other cafeteria plans) • 132(f) and 125 funds cannot be combined or co-mingled • Section 132(f) is easier to administer and more flexible allowing employee enrollment as often as monthly

12. Section 132(f) vs Section 125

13. Limits on Pre-tax Commuter Benefits • Transit or vanpool fares up to $115 per month, and • Qualified parking up to $220 per month (2008 tax year)

14. Pre-Tax Parking Benefit • Up to $220/mo can be reimbursed from pre-tax wages ($2,640 annually) • Can be in addition to $115/mo transit/vanpool benefit • Company can pay parking provider directly from pre-tax set aside funds • Company can reimburse employee directly as long as a ‘bona fide reimbursement arrangement’ is used. • Check with your tax advisor for details

15. What commute fares are eligible for the Pre-tax Benefit? • Fares on any mass transit (bus, rail, ferry) or public agency vanpool are eligible when paid with a pass, ticket or voucher (vouchers are redeemable for fare media) • Passes, ticketbooks and vouchers must be ordered and distributed by the employer (or Third Party Administrator) to the employee

16. What about Cash Reimbursement? • Cash reimbursement is not generally allowed for pre-tax commuter benefit in our region because vouchers are readily available • Possible Exceptions: • train tickets purchased at vending machines • privately owned vanpool fares • parking

17. Who Can Receive Pre-Tax Commuter Benefits? • All W-2 recipients can receive commuter benefits, including those working for: • Private sector companies • Non-profit companies • Federal government • State and local governments (when legislation permits)

18. Who Cannot Receive Pre-Tax Commuter Benefits? • Self-employed persons (sole proprietors and partners) • 2% shareholders of S Corporations • Contractors

20. Five basic steps to a Pre-tax Commuter Benefit 1. Decide it’s a go! 2. Make arrangements with payroll to set aside employees’ pre-tax wages 3. Communicate with/enroll employees 4. Buy the passes or vouchers employees need for bus, train, ferry or vanpool using set aside funds 5. Distribute passes/tickets/vouchers to employees

21. Ordering Passes Pre-paid orders • Order online or by phone with a company Visa or Mastercard. • Order by regular mail with a credit card, company check or money order. The passes will be delivered to your company by regular or certified mail Buy on Consignment • A standing monthly order that will be delivered to your company each month by mail. Return unused passes and payment for passes actually sold or distributed. • Companies must purchase a minimum of 10 transit passes per month. FlexPass • FlexPass is an annual pass program offering lower-cost passes when you purchase for all your employees.

22. When to Order Passes • With pre-pay, you need to order passes for Month B by the 20th of Month A. You will receive the passes within six days leaving time to distribute them to employees • Other considerations: • Timing of payroll • How often you allow employees to opt into or out of pre-tax program

23. Pre-tax Implementation • Payroll approves simple form to authorize pre-tax benefit • Employees are notified of new benefit and 10 employees enroll using form • Payroll makes appropriate pre-tax deductions • Payroll assistant orders and distributes 10 passes: • 7 1-zone PugetPasses ($63 month) • 2 2-zone PugetPasses ($81 month) • 1 Ship-to-shore pass ($148 month)

24. Other steps and issues... • Legal interpretation • Union issues • Administrative process - • simple for small companies • for larger companies can be complex but doable with well-defined process including timeline for action items

25. Third Party Administrators • Mostly used by employers with large workforces, centralized administration and/or multiple worksites • Services that may be provided by TPA for a fee: • Enrollment services • Payroll deduction management • Ordering and distribution of passes and/or vouchers • Reporting and record-keeping

26. Three ways to provide commuter benefits 1. Employee-paid pre-tax: Employee reserves income on pre-tax basis to pay for transit/vanpool fares 2. Employer-paid: Employer pays full cost of transit/vanpool fares 3. Shared cost: Employer pays part of cost and employee pays balance using pre-tax income or out-of-pocket In all cases, employers purchase the pass or voucher to deliver to employee

27. More about shared-cost Commuter Benefits • Allowed by the federal tax code. • Employers may pay up to $115 per employee per month as a tax-exempt benefit - meaning the benefit doesn’t increase an employee’s taxable income. • Combined total of the employer and the employee contribution may not exceed $115 per month

28. Pre-tax with FlexPass • Employee may be charged up to 50% of pass cost by employer • Employee can use pre-tax income to pay their portion • Employees must sign a FlexPass User Agreement • Can add pre-tax authorization to user agreement; no additional form necessary

29. Leveraging pre-tax benefits: A comparison of value to Joe

30. Leveraging pre-tax benefits: A comparison of value to Joe

31. Leveraging pre-tax benefits: A comparison of value to Joe

32. Reality Employer Programs • Tom Douglas Restaurants

33. Additional Resources • Title 26 USC Section 132 (f) - “Qualified Transportation Fringe” and Federal Register/Rules and Regulations • That’s the Ticket product comparison guide • Online tools at www.metrokc.gov/pretaxpass/ • Gayle Delanty, King County Metro 206-263-3455 • Your Tax Advisor

34. Pre-Tax Commuter Benefit - Thoughts to take with you • Simple and flexible • Low to no-cost to employer • Only available to employee with employer involvement