The stimulus package stipulates certain provisions for employer-provided commuter benefits. This plan increases the amount of mass transit and vanpool benefits that can reduce an employee’s gross income and thereby reduce tax liability overall. This law is in effect from February 2009 through the end of the 2010 tax year.

According to the Employee Benefits Research Institute, American companies will spend $470 million on employer-provided transit passes and nearly $3.1 billion on employee parking expenses in 2009. When you begin to work for a new employer, it is important to take commuter and transit benefits into account, particularly if you live in a major urban area such as New York or Los Angeles. The cost of parking, commuter rail rides, buses or vanpool services can add up quickly, and you don’t want to end up paying a large part of your salary for transit if you don’t have to.

The federal government commuter tax program can help you save up to 40% on your transit costs. This federal tax code gives employers the opportunity to provide subsidized and non-subsidized tax-free transit resources to employees. These include mass transit, vanpool and parking benefits. Through this program, employees can save money on income tax and FICA/Medicare contributions because their reported gross income is reduced by the amount of transit andr parking fees. Employers save money on FICA, disability, unemployment and workman’s comp payroll expenses as well.

Two Plan Options
1. Pre-Tax Salary Deduction: If you so choose, you can have money deducted from your paycheck before taxes are taken out. If used regularly, this can save you up to $500 a year on commuting costs. Here’s how it works. Under Section 123(f) of the Internal Revenue Code, benefit plans can allow for a tax-free contribution of up to $230 a month ($2,760 a year) for transit or parking. This plan reduces your gross salary by up to $330 a month, but your take-home pay is still only reduced by $200, which is a savings of up to $130 a month. These plans also save employers up to 8% in payroll taxes, since the payroll amounts are reduced across the board.

TheStreet Recommends

2. Complete Coverage: The employer can also choose to pay for parking or transit completely. The company will then receive all tax benefits but employees will save thousands a year on commuting costs.

Take Advantage of Local Discounts
If you take public transportation, keep a log of these expenses and buy discounted monthly rider passes where available. For example, New York offers a reduced fare metro card that gives you unlimited rides for no more than $40.50 a month, available to those over 65 or with disabilities.

Related Stories:
Six Tips On How To Commute Well With Others

How To Cut Commuting Costs

Plan B Travel