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Tax free transportation 2013

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Join Commute Seattle for an informative workshop to learn how employers and commuters can take advantage of commuter benefit programs to save on federal and …

Join Commute Seattle for an informative workshop to learn how employers and commuters can take advantage of commuter benefit programs to save on federal and
state taxes, increase employee spending power, and make commuting to work more affordable, convenient and sustainable.
Learn about:
• Federal tax qualified transportation fringe benefits:
• Recent increases in transit, vanpool and parking fringe benefit spending limits
• Pre-tax accounts and ORCA business options
• Tax-free bicycle commuter benefits
• WA state business & occupation tax credits for commute trip reduction activities
• Parking cash-out programs, Zipcar for Business, Rideshare Online incentives and other taxable transportation benefits

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  • While there are plenty of environmental and health benefits to reducing drive-alone commuting, Commute Seattle’s focus is primarily on the economic benefits- Just looking at an areal view of downtown makes it clear that we are geographically constrained by water and hills, and we simply don’t have the physical space for the parking garages and freeway lanes necessary to accommodate a high-drive alone rate. If we are going to grow the economy here, and have more employees, customers and clients coming downtown, we need to be smart about how we manage resources and get people to downtown worksites.
  • Here the break down. The first choice among commuters is TRANSIT , followed by drive alone, riding sharing (capooling or vanpooling), walk and bike commuting So this data reveals changing trends in how your tenants arrive to your buildings, and has implications for property development and management
  • Annual miles traveled by car among all 16- to 34-year-olds dropped 23 percent from 2001 to 2009, according to a  study  from the "Frontier Group" think tank—and that does not even count the past three years of recession and $4-a-gallon gas.
  • Federal Insurance Contributions Act
  • Changed in 2011 from 6.2% to 4.2% on first $106,800 of wages earned Will remain 4.2% through February
  • Title 26 USC Section 132 (f) - “Qualified Transportation Fringe” and Federal Register/Rules and Regulations
  • would be $331.02 more for joe would be $82.62 more fore abc
  • The monthly median price for unreserved parking is $285, which is above the national average of $161.56, according to the report on a study by  Colliers International . At $25 per day, Seattle’s daily rate was tied with San Francisco.
  • The temporary increase in the benefit was set up under the American Recovery and Reinvestment Act (ARRA) and expired at the end of 2011.   
  • Unless employers have strong benefits tracking records, they may be challenged to take advantage of 2012 retroactivity as benefit actions are reported monthly on W2s and most companies will have already completed their 2012 IRS data.  The IRS should be developing a process for retroactivity and it is recommended that any employer interested should await IRS guidance and/or consult their corporate tax advisor.    
  • Can be in both programs at the same time – example, add some choice products to a Passport
  • “ Regularly” – this card says 3 times/week, other firms have used a minimum of 10 days/month
  • Employer must decide How much the employer will pay Who is eligible to receive the benefit Procedure for requesting reimbursement of bike commuting expenses.

Transcript

  • 1. 1/16/2013Commute Smart Business Workshop
  • 2. Agenda• Introduction to Commute Seattle• Commuter Trends Transit Benefits• Washington State B&O Tax Credits• Federal Transportation Fringe Benefits – Transit / Vanpool – Qualified Parking – Bicycle Benefit• Implementation
  • 3. City of Seattle Center City Focus•Vision: Keep downtown Seattle economically competitive by improving access to and within downtown.
  • 4. Limits to Drive-Alone Commuting
  • 5. 2010 Survey Findings 2012 Survey results coming soon! 5
  • 6. Factors affecting downtown commuters• Rising fuel and parking prices• Tolling on the 520 Bridge• Viaduct construction• No more RFA- Pay on Entry
  • 7. Better Transportation Options• Link Light Rail, Streetcar and Rapid Ridedowntown and expanding• Bicycle infrastructure improvements• Real-time transit info• Convenient telework technology• Zipcar, Car2go, Uber
  • 8. Commuter Benefits Becoming More Valuable
  • 9. Commuter Benefits• Highly valued and relatively inexpensive• Decrease your company’s carbon footprint• Improve morale and productivity• Help make downtown more accessible• WA Commute Trip Reduction (CTR) Regulations• Tax benefits
  • 10. Who pays what?
  • 11. Joe Commuter ACME Co XYZ Building, ABC Properties
  • 12. Downtown Seattle Employees pay:• Federal Taxes • Federal Withholding Taxes • FICA Taxes • Social Security • Medicare
  • 13. Downtown Seattle Employers pay:• Federal Taxes • FICA Taxes • Social Security • Medicare • Corporate Income Tax• WA State Taxes • Business and Occupation Taxes
  • 14. Downtown Seattle Property Owners pay:• Federal Taxes • Corporate Income Tax• WA State Taxes • Business and Occupation Taxes
  • 15. WA State Taxes
  • 16. WA State Business and Occupation Tax• The WA State B&O Tax is a gross receipts tax. It is measured on the value of products, gross proceeds of sale, or gross income of the business.
  • 17. WA State B&O Tax• Employers and property managers who provide commute trip reduction incentives to or on behalf of their own or other employees are eligible for a credit against their business and occupation (B&O) liability.• Commute trip reduction methods that qualify for the credit are: – Ride Sharing – Public Transportation – Car Sharing – Non-Motorized Commuting
  • 18. WA State B&O Tax• Credit is 50% of the amount paid to or on behalf of each employee, up to $60 per employee per fiscal year.• No employer or property manager may receive more than $200,000 of credit per fiscal year.
  • 19. WA State B&O Tax• The total amount of credit available for all Washington taxpayers is limited to $2.75 million per year.• After all businesses apply and exceed the $2.75 million limit, a proportional reduction is applied to each application.• What we’ve heard: Expect back approximately 60 to 70% of what you apply for
  • 20. WA State B&O Taxes• The application must be received by the Department of Revenue between January 1 and January 31, following the calendar year in which the applicant made commute trip reduction incentive• Applications will be approved within 60 days of the January 31 deadline• Application is in your packet or apply online: http://dor.wa.gov/content/FindTaxesAndRates/TaxIncentives/IncentivePrograms.as
  • 21. WA State B&O Taxes• The program is set to expire June 30, 2013• Renewal is under consideration by legislature• Let us know if you are interested in voicing your support for renewal.• For questions about the program, call Beth Mills at (360) 705-6642.
  • 22. Federal Taxes
  • 23. 2012 Federal Tax BracketsAnnual Taxable Income Tax Rate on Last Dollar Earned Social Social Security Security Federal Income Rate for Rate For Medicare Single Tax Rate Employee Employer Rate Total Employee Total Employer $0 – $8,700 10% 4.20% 6.20% 1.45% 15.65% 7.65% $8,700 – $35,350 15% 4.20% 6.20% 1.45% 20.65% 7.65% $35,350 – $85,650 25% 4.20% 6.20% 1.45% 30.65% 7.65% $85,650 - $110,100 28% 4.20% 6.20% 1.45% 33.65% 7.65% $110,100 - $178,650 28% 0.00% 0.00% 1.45% 29.45% 1.45% $178,650 – $388,350 33% 0.00% 0.00% 1.45% 34.45% 1.45% Over $388,350 35% 0.00% 0.00% 1.45% 36.45% 1.45% Federal FICA Withholdings 2013 employee Social Security Payroll tax reverted back to 6.2% up to $113,700
  • 24. Joe’s Taxes• Joe is single and makes $50,000 per year working for ACME Company. He has no children, doesn’t own his own home, and has no other sources of income or deductions.
  • 25. Joe’s TaxesAnnual Taxable Income Tax Rate on Last Dollar Earned Social Social Security Security Federal Income Rate for Rate For Medicare Single Tax Rate Employee Employer Rate Total Employee Total Employer $0 – $8,700 10% 4.20% 6.20% 1.45% 15.65% 7.65% $8,700 – $35,350 15% 4.20% 6.20% 1.45% 20.65% 7.65% $35,350 – $85,650 25% 4.20% 6.20% 1.45% 30.65% 7.65% $85,650 - $110,100 28% 4.20% 6.20% 1.45% 33.65% 7.65% $110,100 - $178,650 28% 0.00% 0.00% 1.45% 29.45% 1.45% $178,650 – $388,350 33% 0.00% 0.00% 1.45% 34.45% 1.45% Over $388,350 35% 0.00% 0.00% 1.45% 36.45% 1.45%
  • 26. Joes Tax RateTaxable Income = $50,000 Bracket Differences Taxed Amount Tax Rate Tax Owed $8,700 - $0 = $ 8,700 x 15.65% = $ 1,362 $35,350 - $8,700 = $ 26,650 x 20.65% = $ 5,503 $50,000 $35,350 = $ 14,650 x 30.65% = $ 4,490 Total = $ 11,355 Joes Tax Rate = $11,355 / $50,000 = 23% Employer Tax = $50,000 x 7.65% = $ 3,825.00 • Joe must pay 15.65% on first $8,700 earned, 20.65% on dollars earned between $8,500 and $35,350, and 30.65% on dollars earned between $35,350 and $50,000. • Joe pays $11,355 per year, or 23% in federal withholding and FICA • The rate that Joe is taxed on his last dollar earned is 30.65% • ACME Co must pay 7.65% on all $50,000 earned • $3,825 in FICA taxes • When Joe spends pre-tax income on qualified benefits, he saves 30.65%, ACME saves 7.65%
  • 27. Federal Commuter Benefits1.Employee-paid pre-tax • Employee reserves income on pre-tax basis to pay for transit/vanpool fares1.Employer-paid tax-free • Employer pays full cost of transit/vanpool fares as a tax-free qualified fringe benefit1.Shared cost • Employer pays part of cost tax-free and employee pays balance using pre-tax income
  • 28. Who Can Receive Tax-Free 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)
  • 29. Who Cannot Receive Tax-Free Commuter Benefits?• Self-employed persons (sole proprietors and partners)• 2% shareholders of S Corporations• Contractors
  • 30. Pre-tax Commuter Benefit• A specified amount of employee salary is reserved before payroll taxes are deducted to buy transit or vanpool fare media and or qualified parking• Employee-paid but requires employer administration• See Title 26 USC Section 132 (f) - “Qualified Transportation Fringe” and Federal Register/Rules and Regulations
  • 31. 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
  • 32. 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 – Reporting and record-keeping
  • 33. Joe’s Pre-tax Commuter Benefit• ACME Co allows Joe to buy his $90 Metro One- Zone Puget Pass with pre-tax dollars – Joe spends $90 x 12 months = $1,080 on transit in 2012 – Joe’s taxable income is now: • $50,000- $1,080 = $48,920
  • 34. Joe’s Pre-tax Commuter Benefit• Joe saves: • $1,080 x 30.65% = $331 per year, or $27.59 each month• This effectively brings the price of his $90 Metro One-Zone pass to $62.41• ACME Co saves: • $1,080 x 7.65% = $82.62 per year
  • 35. Joe’s Employer-Subsidized Commuter Benefit• ACME Co purchases Joe’s $90 Metro One-Zone Puget Pass for him – ACME Co spends $1,080 on transit for Joe in 2012 as a tax-deductible business expense – This is a qualified fringe benefit- not taxable income • Joe’s taxable income is still $50,000, not $51,080 – The benefit is like giving Joe a $1,080 raise tax-free
  • 36. Monthly Cost Monthly Cost to If ACME Co: to Joe ABC Does Nothing $90 $0Administers pre-tax benefit $62 ABC saves $7Subsidizes $45 per month +administers pre-tax benefit $31 $42Subsidizes 100% of monthly pass $0 $90
  • 37. Pre-Tax Parking Benefit• Like transit benefit for “Qualified Parking” – Parking provided to employees on or near the business work premises, or parking on or near a location from which employees commute to work by commuter highway vehicle, mass transit, or vanpool.• Can be pre-tax employee spending, tax-free employer subsidy, or combination• Can be administered in addition to transit/vanpool benefit• Company can pay parking provider directly from pre-tax set aside funds or use a ‘bona fide reimbursement arrangement’.
  • 38. Commuter Benefit Monthly Limits as of 12/31/12Maximum Tax-Free Spending for: 2010 2011 2012 2013Vanpool, Bus, Ferry, Rail (all public transportation) $ 125 $ 230 $ 125 $ 125Qualified Parking $ 230 $ 230 $ 240 $ 240• 2011 – Stimulus package increases transit/vanpool benefit limit to $230• 2012 – Transit vanpool limit reverts back to $125 – Parking limit increases to $240 as the result of a cost-of-living adjustment
  • 39. Downtown Type of Pass LINK Light Rail: Beacon Hill/SoDo Stations One-Way Fare $2.00 Monthly Price $72.00 Seattle LINK Light: Rail Columbia City-Rainer Beach $2.25 $81.00 Washington State Ferries (WSF): Central Sound $7.10 $90.90 Sound Transit One Zone Express $2.50 $90.00 Retail Metro Peak One Zone Vanpool LINK Light Rail: Tukwila & Airport $2.50 NA $2.75 $90.00 $90.00 $108.00 Transit Metro Two Zone Water Taxi West Seattle $3.00 $3.00 $108.00 $108.00 Rates Sounder Train: Tukwila station $3.25 $117.00 Sound Transit Multi-County $3.50 $126.00 Sounder Train Edmonds/Kent Station $3.50 $126.00 Community Transit South/Everett $4.00 $144.00 Sounder Train: Auburn $3.75 $135.00 King County Water Taxi: Vashon/Seattle $3.75 $135.00 WSF: Vashon/Fauntleroy + Metro One Zone $7.40 $139.85Modes that WSF: Southworth/Fauntleroy + Metro One Zone $7.40 $139.85exceed WSF: Bainbridge/Bremerton + Kitsap Transit $9.50 $146.80 Sounder Train: Mukilteo $4.00 $144.00$125 per Sounder Train: Puyallup/Sumner $4.25 $153.00month Community Transit North/East $5.25 $189.00 Sounder Train Everett $4.50 $162.00 Sounder Train Tacoma $4.75 $171.00 Sounder Train South Tacoma $5.00 $180.00 Sounder Train Lakewood $5.25 $189.00
  • 40. Commuter Benefit Monthly Limits as of 01/01/13 Maximum Tax-Free Spending for: 2010 2011 2012 2013 Vanpool, Bus, Ferry, Rail (all public transportation) $ 125 $ 230 $ 240 $ 245 Qualified Parking $ 230 $ 230 $ 240 $ 245• 2013 – 2012 “Fiscal Cliff” deal increases monthly transit/vanpool and parking benefit spending limits to $240 for 2012, and $245 for 2013 – The provision is retroactive to January 1st 2012 – The increase expires January 1st 2014 unless congress votes to extend it.
  • 41. The Fine Print
  • 42. ORCAOne Regional Card for All
  • 43. Types of ORCA Accounts• ORCA Personal Account• ORCA Business Choice• ORCA Business Passport
  • 44. ORCA Business Choice• Monthly passes • Bus, Rail, Ferry, Vanpool • “PugetPass”• E-Purse• Monthly ordering, retail pricing• No minimum employer contribution or employee count
  • 45. ORCA Business Passport• Deeply discounted, annual, comprehensive, unlimited, bundled transit pass• Unlimited rides on: – All regional buses – All regional rail – King County Water Taxi• Fully subsidized Vanpool/Vanshare• Home Free Guarantee
  • 46. ORCA Business Choice Monthly Pass Pricing Type of Pass One-Way Fare Monthly Price Annual CostLINK Light Rail: Beacon Hill/SoDo Stations $2.00 $72.00 $864.00Metro Peak One Zone / ST One Zone Express $2.50 $90.00 $1,080.00Vanpool NA $90.00 $1,080.00LINK Light Rail: Tukwila & Airport $2.75 $108.00 $1,296.00Metro Two Zone $3.00 $108.00 $1,296.00Water Taxi West Seattle $3.00 $108.00 $1,296.00Sound Transit Multi-County $3.50 $126.00 $1,512.00Community Transit South/Everett $4.00 $144.00 $1,512.00Sounder Train: Puyallup/Sumner $4.25 $153.00 $1,836.00Community Transit North/East $5.25 $189.00 $2,268.00Sounder Train Everett $4.50 $162.00 $1,944.00Sounder Train Tacoma $4.75 $171.00 $2,052.00Sounder Train Lakewood $5.25 $189.00 $2,268.00 ORCA Business Passport Pricing Type of Pass Equivalent Monthly Price Annual Cost ORCA Passport For Downtown Companies - Covers all transit in $42* $504 * Central Puget Sound**
  • 47. ORCA Business PassportRules: 1. Company must have at least 5 employees to qualify 2. Company must purchase Passport for ALL Full Time benefited employees 3. Company must subsidize at least 50% of the cost of the Pass
  • 48. If Employer: Monthly Cost to Joe Monthly Cost to ACME Does Nothing $90 $0Administers pre-tax benefit $62 Saves $7Subsidizes $45 per month + $31 $42administers pre-tax benefitPurchases ORCA Passportand pays 50% (employee $15 $20uses pre-tax)Purchases ORCA Passport $0 $42and pays 100%Subsidizes 100% of monthly $0 $90pass
  • 49. Refer a business contact to Commute Seattle.If their company purchases ORCA BusinessPassport, you and your contact will eachreceive a $50 gift voucher to REI!
  • 50. Five basic steps to a Pre-Tax Commuter Benefit1. Decide it’s a go!2. Make arrangements with payroll to set aside employees’ pre-tax wages3. Communicate with/enroll employees4. Buy the passes employees need for bus, train, ferry or vanpool using set aside funds5. Distribute passes to employees6. Have costs deducted from employees paychecks
  • 51. Five basic steps to a Tax- Exempt Commuter Benefit1. Decide it’s a go!2. Communicate with/enroll employees3. Buy the passes employees need for bus, train, ferry or vanpool as a tax-deductible business expense4. Distribute passes to employees5. Apply for WA State B&O tax credit in January
  • 52. Federal Bicycle Commuter Benefit Photo: Tom Fucoloro
  • 53. Bicycle Tax-Free Benefits• The Bicycle Commuter Act – Effective January 1, 2009, employers may reimburse employees, tax free, up to $20/month for "reasonable" expenses related to their bike commute if the bicycle is used as a "substantial part" of the commuters trip to work for the month. – “Reasonable” includes • Bike and equipment purchases • Repairs • Storage
  • 54. Eligibility • Commuters who “regularly” use their bicycle for a substantial portion of their commute. AND • Receive no otherX X transportation benefits, such as parking subsidies or employer- discounted ORCA passports
  • 55. Employee benefits• Up to $20 for each qualifying month• Non-taxed  greater buying power• Money must go towards: • Purchase of bicycle or bicycle accessories • Bike commuting clothing and gear • Bicycle maintenance • Bicycle storage fees• Note: Has to be employer paid- no pre-tax allowed.
  • 56. Employer benefits• No FICA taxes on bicycle benefit spending• Each $20 payout saves $1.53• Supports company health and wellness and sustainability programs
  • 57. Bicycle Tax-Free Benefits• How Are Reimbursement Requests Substantiated? – Employers must verify a legitimate expense was incurred – Employer must reimburse by March 31st of the following calendar year – Cash reimbursement or voucher to local bike shop acceptable- up to $240 per year – No formal procedures or paperwork
  • 58. Federal Tax-Exempt Benefits• $245 per month Transit / Vanpool • Tax-free benefit, pre-tax spending or combo• $245 per month Qualified Parking • Tax-free benefit, pre-tax spending or combo • Transit / Vanpool and Parking can be combined- up to $490 total• $20 per month Bicycle Benefit • Tax-free benefit only • Can’t combine with other fringe benefits
  • 59. Non-Tax-Exempt Benefits• Parking cash-out incentives• Gym memberships• Zipcar for Business, car2go• Carpool parking discounts• Rideshare Online incentives for walking/biking/carpooling etc.
  • 60. Find a match Enter your starting place, Enter your starting place, destination and your trip times. destination and your trip times. See where each See where each person’s commute person’s commute starts and ends. starts and ends. Specify ififyou want to drive and Specify you want to drive and Choose your match Choose your match include specific details. include specific details. and make contact. and make contact. RideshareOnline.com 63
  • 61. Commute Seattle is Here to Help!• Commuter tax benefits• Commute program cost comparisons• Employee outreach• Best practices
  • 62. Next Steps If your company is…• Doing nothing– Set up a 132 (f) pre-tax account for employees and consider providing a tax-free transit subsidy• Subsidizing transit in any capacity– apply for the WA State B & O Tax Credit- 2 weeks left to apply!• Fully or partially subsidizing monthly Passes – Look into ORCA Business Passport
  • 63. Questions?MikeR@commuteseattle.com 206-613-3132