United States             Air and Radiation         EPA420-F-98-031
                   Environmental Protection                         December 1998

                   Office of Mobile Sources
&EPA        Environmental
                   Fact Sheet
                   Commuter Choice:
                   Information  for Employers
                  Commuter Choice Programs allow businesses to give employees a better
                  benefits package, save tax money, and save on parking costs. The
                  programs also help employers improve local air quality and decrease
                  traffic congestion.
                  What is Commuter Choice?

                  Commuter Choice programs provide a framework for employers to offer
                  commute benefit options which will encourage employees to get to work
                  in ways that are less polluting than driving alone. A Commuter Choice
                  program can be developed by an individual company or as part of a
                  wider regional strategy. Such programs serve as attractive employee
                  benefits which help in the recruitment and retention of quality employ-
                  ees. In addition, because of recent changes in the Federal tax code,
                  employers can save on taxes by offering these benefits.
                  Commute Options

                  Commuter Choice programs may include one, all, or a combination of
                  the following individual benefits:

                      Free or reduced cost passes for public transportation, such as sub-
                      way cards, bus tokens, or train tickets.
                                                         > Printed on Recycled Paper

                   Services to facilitate vanpooling and carpooling such as providing
                    vans, ridematching, and a guaranteed ride home.
                   Telecommuting options (so employees can work at home more
                   Proximate Commuting: a program that matches employees of multi-
                    site employers (such as banks or chain stores) to the branch office
                    nearest their home.
                   Incentives to bike or walk.
                   Parking Cash Out: employees can trade employer-paid parking
                    space for cash or transit/vanpool benefits. (Employers can deduct
                    the cashed out space from income taxes as a parking benefit.)
Commuter   Federal law offers these tax advantages to employers who provide em-
Benefits in
Federal Tax
ployees with qualified transit, vanpool, and parking benefits:

   Employers do not pay payroll taxes (e.g., PICA, unemployment
    insurance, and other payroll related costs) on the value of these
   When employers pay for the benefit, they can deduct the value of
    these benefits from their Federal business income taxes.
   Employers save compared to conventional raise or bonus.

Under the new tax law, employers can offer the specified benefits for
their employees' work commutes in addition to or in lieu of compen-
sation Federal-tax-free up to these Federal limits:

   Up to $ 175 per month for parking at or near work site and transit
   Up to $65 per month for public transit
   Up to $65 per month for vanpool services

(For transit and vanpooling, this amount will increase to $100/month for
taxable years beginning after December 31,2001.)

Note: Tax Breaks  on benefits only apply directly to transit, vanpool and
parking benefits. The cash option from Parking Cash Out and any other
monetary incentives are taxable for that employee. Subsidized parking
and other transportation benefits do not become taxable if an  employer
offers them along with the Parking Cash Out option. Although the tax
laws do not specifically relate to benefits like telecommuting, carpooling,
biking, walking, and other commute options, employers may  still offer

them. One way to provide incentive for these other options is through
Parking Cash Out, where employees can choose the cash benefit and
commute by these alternative modes.
How Benefits are Offered
1. In Addition to Compensation/Additional Benefit
An employee may receive the benefit in addition to their current wages.
Specifically, they can receive transit, vanpool, and parking benefits
completely free of all U.S. payroll and Federal income taxes. The em-
ployer pays for the benefit and receives a deduction from his Federal
business income taxes for the value of the benefit. The employer also
does not pay payroll related taxes or costs on the benefit.

   Employer purchases a $65 subway or bus pass and gives it to the
    employee. Employee pays no payroll or income taxes on benefit.
    Employer pays no payroll taxes and deducts the $65/month ($7807
    year) expense.
   Employer provides a free vanpooling service worth $65 per month.
    Employer and employee experience same tax savings as above.
   Employer offers the $80 instead of the parking space (Parking Cash
    Out). Employee can take $80 as taxable income or keep parking
    space tax-free. Employer deducts the $960 per year benefit from
    Federal business income taxes, but pays payroll  taxes on the cash
    for that employee.

2. In Lieu of Compensation/Pre-tax Benefit
An employer may  permit employees to set aside some of their income,
before taxes, to pay for their commutes. Employees may use this pre-tax
income to pay for transit, vanpools, or parking. Employees would not
pay Federal income taxes or payroll taxes on the amount they elect to set
aside for the commute option, and employers would not pay U.S. payroll
taxes or other payroll related costs since the amount is treated as a
benefit rather than as taxable salary.

Example: Employee asks employer to set aside $65 per month of
existing (pre-tax) salary for a subway or bus pass. Employee saves
payroll and income taxes on $65 per month. Employer saves payroll
taxes on $65 per month.

Employers may share the cost of commuting to and from work with their
employees. They could do this through a combination of the two benefits

Example: Employer provides a $35 transit pass. Employee asks em-
ployer to set aside $30 from existing (pre-tax) salary. Employer saves
payroll taxes on $65 and deducts the additional $35 expense. Employee
saves on payroll and income taxes for the $65 benefit.

Commuter Choice Can Save Employers Money
Clearly, employers do save money on taxes for providing the Federally
specified benefits. In fact, because of these payroll and income tax
savings, providing commute benefits can sometimes be cheaper than
providing a salary increase (depending on fringe factors). However, there
are also other ways costs can be cut, revenue produced, and money
saved. Reducing employee demand for parking can free up parking
spaces for customers, or the space can be converted for other revenue
producing purposes. Commuter Choice programs also have the potential
to remove need for expensive new parking construction.

Commuter Choice Enhances Recruitment and Retention
With additional benefits, employers stand out in the competitive market
for qualified employees. By offering a choice of commute option ben-
efits, an employer can respond to the differing needs of these employees.
Under the current tax code, employers can realize Federal payroll and
income tax savings while providing their employees with benefits that
are appreciated by current employees and sought by potential employees.

Commuter Choice is Flexible For Employers
A Commuter Choice program can take different forms, for employers in
different areas. This is not a "one size fits all program" because transpor-
tation alternatives and parking situations vary from region to region.
Employers have the flexibility to address commute benefit issues within
the context of site specific circumstances.

Commuter Choice Improves Air Quality and Relieves
Commuter Choice programs can help reduce air pollution and other
negative environmental effects from commuting by reducing vehicle
miles traveled. Expanding travel choices is a way to improve air quality
and decrease congestion. Commuters with choices other than free park-
ing are less likely to drive alone to work.

                Employers and Employees like Commuter Choice
                The experience of many participating employers in Commuter Choice
                programs has been uniformly positive. Programs have achieved high
                satisfaction rates from employers and are well appreciated by employ-
                ees. Parking Cash Out in California, for example, has been characterized
                as "a really good experience," "fairer," "very little administrative bur-
                den," and "loved" by employees.1

                Getting Recognized for Commuter Choice
                Employers can gain recognition for their programs. In early 1998,
                Tacoma, Washington held its first "Governor's Commute Smart
                Awards". Eighteen out of 900 work sites involved in the Washington
                Department of Transportation's (DOT) Commute Trip Reduction Pro-
                gram were honored at a luncheon in Olympia.
For More     This document and additional information on transportation and air
Information   Qus^ty are available electronically at the TRAQ Center on the EPA
                Internet server at:


                For a hard copy of this document, please call the National Service
                Center for Environmental Publications (NSCEP) at (800) 490-9198.

                For more information, please contact:

                  Deanne Upson
                  US Environmental Protection Agency
                  Transportation Air Quality (TRAQ) Center
                  2000 Traverwood Dr.
                  Ann Arbor, MI 48105
                  phone: (734) 214-4283
                  fax: (734) 214-4052
                  e-mail: upson.deanne@epa.gov

                Or call the TRAQ Center Information Request Line at:

           .  . .  (734)214-4100
                1 Shoup, Donald, "Evaluating the Effects of Parking Cash Out: Eight
                Case Studies," final report to the California Air Resources Board. Draft,
                May 22, 1997.