Tax Highlight: Maryland Commuter Tax Credit for Employers

Rising commuting costs can affect employees’ daily budgets and make it harder for businesses to keep benefit programs competitive. For Maryland businesses that subsidize certain commuting expenses, the Maryland Commuter Tax Credit may help reduce the after-tax cost of providing those benefits. The credit can be valuable, but it is not automatic. Whether the credit applies depends on the type of benefit provided, the employee’s work location, and how the program is documented.

Who Qualifies for the Credit

To qualify, employers generally need to provide eligible commuter benefits to employees whose workplace is in Maryland. The credit is available to Maryland businesses and certain nonprofit employers that meet the program requirements.

Criteria to qualify generally include:

• The business is a Maryland company, sole proprietorship or an eligible nonprofit organization, including IRC §501(c)(3) and §501(c)(4) organizations.
• The employee’s workplace is in Maryland, and the business pays part of the employee’s commute between home and work.
• Qualified benefits may include transit passes, fare cards, smart cards, tickets, vouchers, tokens, qualified mass transit, vanpools, Guaranteed Ride Home, and cash in lieu of parking. Reimbursements for garage parking do not qualify.
• Other qualifying programs approved through the Maryland process may include telework, active transportation, and multimodal commuter programs.
• For employer-supported telework programs, qualifying costs may include prorated internet, computer equipment, telephone, software, and required supplies not otherwise provided by the company.

The credit applies to commuter benefits provided to employees; employers cannot claim the credit for their own commuting costs.

Eligible employers may claim a credit for 50% of qualified commuter benefit costs, capped at $100 per employee per month, or $1,200 per employee per year. As an example, a Maryland business owner has five qualified employees that commute to work and provides each employee $200 of commuter benefits per month. The business owner may be eligible to claim a tax credit of $6,000, which can be used to reduce future Maryland tax liabilities.

Applying for and Claiming the Credit

Businesses must register and apply for the credit annually using Maryland’s online OneStop application. The application asks for business information, the types of commuter benefits offered, and the subsidy amounts paid. If approved, Maryland issues a certificate, and applicants should apply early because the program has a $1,000,000 statewide funding cap.

After approval, the certificate is used to claim the credit on the applicable Maryland filing. For income tax purposes, it is claimed on Maryland Form 500CR, Part M. The return must be electronically filed. The required certification must be attached to the tax return. Tax-exempt organizations may claim the credit against state and local taxes withheld using Form MW508CR with Form MW508. The same credit may be applied to only one type of tax. Any unused portion of the credit cannot be carried forward.

Considerations for Businesses

The Maryland Commuter Tax Credit can offset a meaningful portion of employer-funded commuter benefits, but it requires annual registration, documentation, and timely filing. For employers already subsidizing commuting costs, the credit may be an overlooked tax savings opportunity. For employers considering new commuter benefits, the credit may help reduce the after-tax cost of adding a program that supports retention and recruiting. If your business offers, or is considering offering commuter benefits, contact your tax advisor or reach out to the GRF Tax team for help evaluating eligibility, assistance with the application, and make sure the credit is properly claimed on your Maryland tax filings.