The State of Colorado’s Alternative Transportation Option Tax Credit offers a substantial financial benefit to businesses that offer employees alternative transportation options. This may include ridesharing/carpools, bike-sharing programs, subsidized public transportation passes, and vanpool agreements. The credit is limited to 50% of the employer’s expenses related to providing the alternative options which include administrative costs. Organizations can claim 50% of eligible expenses up to $250,000, which means the maximum credit amount is limited to $125,000 per year. To help clients, prospects, and others, Whipplewood CPAs has provided a summary of the key details below.
Which businesses are eligible for the credit?
Businesses with at least 3 employees can implement alternative options and take advantage of this tax savings opportunity. The money can be used for ride-sharing, electric and human-powered bikes, scooters, guaranteed ride-home programs, vans, and car-sharing programs, as well as other similar options. Related administrative and other expenses, including cash incentives to those participating in ride—or bike-sharing programs, can also be claimed.
What is the Value of the Credit?
For businesses that are eligible, 50% of expenses used for alternative transportation are eligible for the credit. This is capped at $2,000 per employee, up to $250,000 per year, and applies to tax years that start on or after January 1, 2023, and before January 1, 2025. This means the maximum credit employers can claim is $125,000.
Initially, the tax incentive was a deduction enacted in 1979. It was more recently amended and became an income tax credit on January 1, 2023, via the passage of HB22-1026 in 2022. Tax years before 2023 are not eligible for the credit.
How to Claim the Credit?
Businesses that want to claim the alternative transportation credit can file form DR 1323 and send an email to DOR_TaxpayerService@state.co.us during the 2024 tax year, with the subject line “Alternative Transportation Options Credit.” The email should also include the employer’s plan for how they will tell employees about the available credit and which transportation options are eligible for the credit. Employers also need to have a plan for how they will encourage employees to use alternative transportation options.
Qualifying employers also need to file a Colorado income tax return. Certain entities, such as nonprofits and municipalities, need to file Colorado C Corporation Income Tax Returns. A portal may be coming soon, but for now, businesses can submit plans this way.
What Else Should Employers Know?
Employers that provide alternative options need to offer them to all Colorado employees. However, there may be a circumstance where a particular option isn’t reasonable because of where the employee lives. In those circumstances, it’s important to offer an option substantially equivalent to what is provided for others. In addition, there are certain documentation requirements.
Currently, the Department of Revenue advises that employers collect certain data for the purposes of reporting. Outside of documentation of the notification plan, employers should also keep track of the number of employees who were offered options for alternative transportation, as well as the number of employees who opted to use alternative transportation, plus the number of trips taken with these options.
Contact Us
The credit represents an important opportunity to reduce state taxes while offering employees a valuable new incentive. Due to the complexity of the program, it is important to consult with a qualified tax advisor to determine your eligibility and potential savings. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Whipplewood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.