Colorado tax credit program
The Alternative Transportation Option Tax Credit, launched in 2023, offers employers statewide a tax incentive for providing commuter or transit benefits like pre-tax payroll deductions or subsidized transit passes to companies with three or more employees. It covers up to 50% of eligible transportation expenses aimed at reducing solo driving. The credit encourages sustainable commuting, lowers traffic congestion, and reduces carbon emissions. Employers must meet eligibility requirements and maintain proper documentation to qualify.
The credit is available to any employer in Colorado with at least three employees that provides alternative transportation options. Eligible employers may include, but are not limited to:
- Corporations
- Partnerships
- Joint ventures
- Common trust funds
- Limited associations
- Limited liability companies (LLCs)
- Pools or working agreements
- Certain tax-exempt entities
There is a cap of $250,000 annually ($125,000 max credit) and a $2,000 annual limit per employee.
- What is covered: Transit, active transportation, shuttle, carpool/vanpool, shared mobility, administrative expenses
- What's not covered: Electric vehicle charging stations, Rental cars, Uber/Lyft rides, out-of-state transportation expenses, physical property (eg. bike racks, locker rooms)
Want to know more about Colorado’s tax credit, or want to start offering commuter benefits to your employees?
For Colorado, the nationwide IRS tax-free limits for commuter benefits apply. For 2025, employees can allocate up to $325 per month for transit and $325 per month for parking, reducing taxable income.
- Pre-tax savings: Employees can lower their taxable income by setting aside funds for transit and vanpool expenses.
- Employer tax benefits: Businesses save an average of 7.65% per employee on payroll taxes.
- Direct transit subsidies: Employers can provide up to $325 per month per employee in tax-deductible transit benefits.
- Additional incentives: Some cities and states offer grants, tax credits, or subsidies for implementing commuter benefit programs.
