Commuter Benefits – What You Need to Know

commuter benefitsCommuter benefits have become a staple in many employer benefits plans, especially in major metropolitan areas around the United States. Commuter expenses add up quickly and become quite costly when you take into consideration fuel costs, vehicle maintenance, parking fees, transit fares, and other associated expenditures. Thankfully the IRS created a way for commuters to save money in order to pay for some of these work-related costs.

Congressional Action

In 1984, Congress sought a remedy for the financial pain caused by commuting to and from work. Now over three decades later, the executive and legislative branches of the federal government continue to help commuters and employers. In December 2015, Congress and President Obama approved the Protecting Americans from Tax Hikes (PATH) Act, part of which raised the monthly exclusion limits on transit pass, commuter highway vehicle, and parking for 2016. Also of note, the transit and commuter highway vehicle limits are now equal to parking limits, whereas in the past there was a significant difference in the numbers ($130 for transit/highway vehicle, $250 for parking).

Qualified Expenses

Refer to the following commuter benefits chart, which comes from IRS Section 132(a), regarding expense types and descriptions.  Monthly pretax deduction limits are also below:

Commuter Benefits Chart

Expense Description
Transit Pass Any pass, token, fare card, voucher, or similar item for mass transit (bus, subway, train, ferry) OR a vehicle (operated by a third party) that sits at least 6 people, not including the driver
Parking Parking lot fees for a lot that is located near the business premises
Commuter highway vehicle Any highway vehicle that seats at least 6 adults, not including the driver
Bicycle Includes purchase of the bicycle and improvements, repair, and storage

Monthly Pretax Deduction Limits

Expense 2018 Monthly Limits
Transit Pass $260
Parking $260
Commuter highway vehicle $260
Bicycle $20

Perks of Commuter Benefits Plans

With commuter benefits plans (also referred to as Transit accounts), both employers and employees enjoy some tax savings. If the plan is offered as a pretax contribution, the employer saves money on payroll taxes since the pretax exclusion doesn’t count towards an employee’s official compensation. Employees save on pretax contributions to their commuter plan because it reduces their total taxable income.

An additional perk for those with a commuter benefit plan is an account-linked debit card. The card connects directly to a specific account funded by employee contributions and deducts the money whenever a purchase is made for commuter expenses. This can help account holders keep better track of their transit purchases, and they don’t have to worry about filing claims for reimbursement. Some debit cards feature transit restrictions which allow the card to only be used where transit fare is sold, which provides enhanced security and reduces fraud.

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