An employer is paying $250 per employee for transportation benefits. Is the effect to the employee and the employer at both the federal and state level?

The employee will receive non-taxable fringe benefits from this and the employer will get a $250 deduction as a monthly business expense per employee at both the federal and state levels.

The employees will have $250 monthly taxable income but the employer will have $250 in deduction per month per employee as a business expense on both the federal and state return.

The employees will have non-taxable fringe benefits, and the employer will have $250 per employee business cost at the state level. On the federal return the cost of the transportation fringe benefit will be non taxable.

The employee will only have a non taxable fringe benefit if they substantiate the cost so the employer can deduct them on their own federal and state returns.