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, 33% savings 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 1.Order online or by phone with a company Visa or Mastercard.Order online or by phone 2.Order by regular mail with a credit card, company check or money order.regular mail 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. FlexPass

22. When to Order Passes With pre-pay, you need to order passes for Month B by the 20 th 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. 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 Three ways to provide commuter benefits

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

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