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Parking "Cash Out"

Employers that provide free or subsidized parking for employees may want to
offer a parking cash out benefit, which gives employees a choice to keep a parking space at work, or to accept a cash payment and give up the parking space.

If the employer is leasing parking spaces for employees, has scarce parking for customers/clients, or a growing cost for parking, a parking cash out program is one of the most cost effective means to encourage employees not to drive alone to work. Parking cash out programs are perceived as fair by employees because it allows them a choice of whether or not to continue driving alone and do not force anybody to stop driving or give up free parking, but those who do are rewarded financially.

The Taxpayer Relief Act of 1998 amended the federal tax code to allow employees to forego parking and cash out the value of the parking benefit. The value of the parking benefit will be subject to taxes. However, if up to $195/mo. of the value is converted to transit or eligible vanpool benefits, the amount converted will not be subject to taxes. The employer may simple transfer the cost for the parking space to a direct payment to employees. Should the employee decide to accept the cash value rather than accept a tax-free transit pass or use it to pay vanpool fare, the amount is treated as additional compensation and the employee would incur payroll and income taxes. The employer will have to pay payroll taxes on the taxable portion of the cash out benefit provided.

To offset that cost, simply lower the cash out amount by the employer’s share of the payroll taxes as follows:

Cost of Parking Space: $150/mo

Subtract Payroll Taxes: - 12./mo.

Cash out Offer: 138/mo

The employees could apply the additional compensation towards costs associated with commuting modes that are not considered qualified transportation fringe benefits, such as walking, bicycling, and carpooling. Cash out provides an incentive for your employees to try other commuting alternatives. Combined with information about those alternatives this strategy can achieve significant results.

Parking Cash Out (PDF)

Parking "Cash Out" Checklist:

  1. Partner with Metro Transit to establish transit pass program
  2. Discuss with management team and union
  3. Obtain Authorization from employees, establish amount
  4. Modify Salary Accounts
  5. Update Personnel Manual
  6. Purchase and distribute benefits from Metro Transit
  7. Prepare modified W-2 statement
  8. Evaluate, celebrate employee participation