Internal Revenue Service (IRS) Tax Benefits for Commuting:

Twenty-five years ago, a simple yet ingenious idea took root: By allowing workers to defray public transportation costs through their employers’ benefits packages, we could reduce traffic congestion and improve air quality. – See more at: http://www.commuterbenefitsworkforus.com/history.html#sthash.yvvekjc1.dpu

Qualified transportation fringe benefits (Section 132(f) of the Internal Revenue Code) or “Commuter Tax Benefits” can be used to rewards employees for using qualified modes of commuting to and from work by reducing their taxable income.

Today, commuter benefits have joined health, retirement and disability at the top of the list of voluntary benefits offered to employees by their employers.

Federal law previously allows employers three ways to reduce the cost of commuting via public transportation (bus, train/ferry, vanpool) for employees:

  1. A tax-free employee-paid benefit;
  2. A pre-tax employer-paid payroll deduction, or
  3. A combination of the above
Twenty-five years ago, a simple yet ingenious idea took root: By allowing workers to defray public transportation costs through their employers’ benefits packages, we could reduce traffic congestion and improve air quality.In 1998, Congress amended the tax code to allow employees to take advantage of the benefit using pre-tax dollars.In 2009, Congress raised to $230, the monthly tax-free cap commuters could spend on the transit benefit. This created parity between the transit and parking portions of the commuter benefit, further promoting the use of eco-friendly modes of transportation. In 2012, however, the cap was reduced to $125. In 2013, as a result of strong Congressional and public support, the cap had equal standing with parking benefit at $245.Today, commuter benefits have joined health, retirement and disability at the top of the list of voluntary benefits offered by companies. Effective January 1, the monthly transit benefit cap was cut nearly in half to $130 while the monthly parking benefit cap increased to $250.If you support parity between the parking and transit benefits – take action now.- See more at: http://www.commuterbenefitsworkforus.com/history.html#sthash.yvvekjc1.dpuf
Twenty-five years ago, a simple yet ingenious idea took root: By allowing workers to defray public transportation costs through their employers’ benefits packages, we could reduce traffic congestion and improve air quality.In 1998, Congress amended the tax code to allow employees to take advantage of the benefit using pre-tax dollars.In 2009, Congress raised to $230, the monthly tax-free cap commuters could spend on the transit benefit. This created parity between the transit and parking portions of the commuter benefit, further promoting the use of eco-friendly modes of transportation. In 2012, however, the cap was reduced to $125. In 2013, as a result of strong Congressional and public support, the cap had equal standing with parking benefit at $245.Today, commuter benefits have joined health, retirement and disability at the top of the list of voluntary benefits offered by companies. Effective January 1, the monthly transit benefit cap was cut nearly in half to $130 while the monthly parking benefit cap increased to $250.If you support parity between the parking and transit benefits – take action now.- See more at: http://www.commuterbenefitsworkforus.com/history.html#sthash.yvvekjc1.dpuf

However, beginning on January 1, 2018, the Tax Cuts and Jobs Act takes effect which, removed the combination of the employer/employee paid deduction option. 

The 2018 maximum allowed pretax benefits are listed in the table below (prepared by the National Center for Transit Research)

Qualified Transportation Fringe Benefits

Category Transit Commuter Highway Vehicle (e.g., vanpool) Qualified Parking Qualified Bicycle Commuting Reimbursement
Incentive Levels Up to $260/month* for transit expenses Up to $260/month* for commute trip in a vehicle with a seating capacity of at least six adults (excluding the driver), with at least 80 percent of the vehicle’s mileage for a year is reasonably expected to be for commuting and on trips during which the number of employees transported for commuting is at least one-half of the seating capacity of the vehicle (excluding the driver) Up to $260/month** for parking at or near an employer’s worksite, or at a facility from which employee commutes via transit, vanpool, or carpool Change in 2018: Qualified Bicycle Commuting Benefit is no longer eligible as a tax free benefit.
Employer Employers may give their employees up to $260/month for transit vouchers, commuter highway vehicle fares and/or commuter parking fees.

Change in 2018: Private sector employers are no longer able to deduct the tax-free qualified transportation fringe benefit payments to employees as a business expense.
Only if an employer treats the qualified transportation fringe benefits as taxable W-2 wages to the employee, the employer can deduct the expenses of providing those benefits.

Change in 2018: Qualified Bicycle Commuting Benefit is no longer eligible as a tax free benefit.
Employers may allow employees to use up to $260 per month in pre-tax income to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.

Employers may reduce their payroll tax contribution of the pre-tax income used by employees to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.

Employee Most employees may receive up to $260/month for purchase of transit vouchers, commuter highway vehicle fares and/or parking fees from his or her employer. This subsidy value will not appear on their W-2 form as income. Change in 2018: Qualified Bicycle Commuting Benefit is no longer eligible as a tax free benefit.
Employee pays for commute benefit with the pre-tax income up to the $260/month statutory limit and receives more after-tax spendable income.
Employee may combine the pre-tax benefit with employer subsidies up to $260/month for each to pay for transit vouchers, commuter highway vehicle fares and/or parking fees.

* tax free transit and vanpool benefit limit increased from $255 per month in 2017.  It was raised to $260 per month for beginning January 1, 2018.

** tax free parking benefit limit increases from $255 per month in 2017 to $260 per month beginning January 1, 2018.

Best Workplaces for Commuter Resources

Best Workplaces for Commuters

Visit the Best Workplaces for Commuters website and get the 2017 Commuter Benefits free ebook to get more information on types of qualified commuter benefits, tax savings for employers and employees, tax benefits of employee pre-tax deductions, and more.