In 2011, the monthly limit on the tax benefit for transit and vanpools was $230 per month and has reverted back to $125 per month as of January 1, 2012. The monthly limit for qualified parking provided by an employer to its employees for 2012 increased to $240 and is up $10 from the limit in 2011. The temporary increase in the benefit was set up under the American Recovery and Reinvestment Act (ARRA) and expired at the end of 2011.

The following are the limits for the 2011 tax year:

Qualified Transportation Fringe (QTF) Benefits

Both employers and employees save on the cost of commuting by taking advantage of the Internal Revenue Service’s (IRS) Qualified Transportation Fringe (QTR) Benefits program, a special tax code regulation that works to significantly reduce commuting cost. The Internal Revenue Service Code 132 (f) allows nontaxable spending up to $230 per month on combined value of commuter transportation and transit passes as well as $230 per month for parking, totaling to $460 per month tax-free. Essentially, neither the employer nor the employee pays taxes on the cost of commuting up to the $230 limit respectively. Savings for both employer and employee are significant.

What Is In the Fine Print Of the Benefits?The IRS offers the tax benefits for commuter transportation in a commuter highway vehicle, transit passes, qualified parking, and qualified bicycle commuting expenses.

Commuter Highway Vehicle (Vanpool)
For a commuter highway vehicle to qualify for tax exclusion, the vehicle must be:

Provided by an employer or a third party for the employer,
Used for travel between employee residence (or parking lot) and the workplace,
Able to provide seating for at least six (6) adults, excluding the driver,
Occupied by at least 50% employees, excluding the driver,
Used for transporting employees between residences, the workplace, and/or parking lots (at least 80% of the mileage).
Transit Passes
By definition, a transit pass is any pass, token, fare card, voucher, etc. entitling a person to transportation. In order for a transit pass to qualify for tax exclusion, the pass must be used for transportation on a public or privately-owned mass transit system, or on transportation provided by a person in the business of transporting people in a qualified commuter highway vehicle (see above). For discounted transit passes, the discounted price must be used in the tax exclusion.The maximum nontaxable value per person is limited to the combined value of commuter transportation and transit passes per month ($230 + $230 parking = $460 per month).

Qualified Parking
To qualify for tax exclusion, parking must be provided to employees on or near either the business work premises, or location from which employees continue to commute to work by another mode of transportation, such as commuter highway vehicle or mass transit station.

Qualified Bicycle Commuting Expenses
Employees who choose to use a bicycle to commute to work qualify to exclude reimbursements from taxes offered by the employer.

How Does the Business Benefit?
By providing a commuter benefit instead of additional salary, the business saves money. Although both commuter benefits and salary are tax deductible as a business expense, the commuter benefit does not require payroll taxes, thus saving the business a substantial amount of money.

The benefits target only current employees; former employees and independent contractors are ineligible.