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The Maine Department of Administrative and Financial Services and the Maine Department of Transportation are pleased to offer the Pre-Tax Benefit Program for State Employees Commuting to and from Work.
How Commuter Tax Benefits Work
The Federal tax code allows commuters the use of tax-free dollars to pay for commuting by transit. Commuter benefits are regulated by the Internal Revenue Code, Section 132(f) – Qualified Transportation Fringe Benefits. As of February 2009, the tax code allows tax-free transportation fringe benefits of up to $230 per month per employee for transit expenses. This can be done as a pre-tax employee-paid payroll deduction (see your employer for form).
Employees who set aside income on a pre-tax basis for a qualified transportation fringe benefit do not pay federal income or payroll taxes on the income set aside. For example, if you have a combined state and federal tax rate of 30% and spend $175 per month on transit expenses you could save $53 each month or $636 per year.
Providing pre-tax commuter benefits to employees can save payroll taxes for employers. The value of the benefit paid to employees is considered a tax-free transportation fringe benefit and not wage or salary compensation, therefore, payroll taxes do not apply. Employers can save 7.65% in FICA on the amount employees set aside.
How to Get Started
Commuter benefit programs are easy for your employer to implement. See your employer for authorization form. Complete the authorization form with the proper $ amount up to $560 per month for transit and parking expenses. Then bring the completed form to your employee benefits administrator or human resource director or who handles payroll at place of employment to implement the payroll pre-tax deduction.