Employers and employees both save on federal taxes when the employer provides benefits like the ORCA pass programs. Employees can spend pretax dollars (up to $260 per month) on a public transportation benefit. The employer can in turn avoid paying FICA tax on those salary dollars.

The result is a valuable employment benefit that saves and encourages public transportation while saving both employees and employers money.

Washington State provides a tax credit for employers and property managers who provide employees with commute trip reduction incentives. The credits apply toward business and occupation (B&O) tax or public utility tax (PUT) liability.

Ride sharing, public transportation, car sharing, and non-motorized commuting are all eligible to provide credits equal to 50 percent of the incentive payment, not exceeding $60 per employee per year. No employer or property manager may receive more than $100,000 credit per fiscal year.

FICA tax: The Federal Insurance Contribution Act (FICA) institutes a 15.3% tax (rate for 2018) that funds Social Security and Medicare. Half is paid by employers through a payroll tax (7.65%), and half is paid by employees (7.65%).

If an employer wishes to pay an employee $100,000, they must set aside $107,650 ($100,000 salary, and $7,650 in FICA tax) to pay that salary level. The employee will receive $92,350 after the FICA tax is deducted. Providing a transportation fringe benefit allows the value of that benefit to be deducted from both the employer and employee side of the salary total used to calculate the FICA tax.

Resources and references:

• Social Security Administration, OASDI and SSI Program Rates & Limits, 2018
• Internal Revenue Service 2018 Employer's Tax Guide to Fringe Benefits (PDF)
• Khan Academy - Explaining the FICA tax
• Association for Commuter Transportation (ACT)
• Washington State Department of Revenue tax incentive programs