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Commuter Tax Benefits

Qualified Transportation Fringe Benefits Summary Table


Qualified transportation fringe benefits (Section 132(f) of the Internal Revenue Code) or “Commuter Tax Benefits” are like money in the bank. Employers save on payroll related taxes. Employees save on federal income taxes.

On December 18, 2015, President Obama signed into law Consolidated Appropriations Act (H.R. 2029) which permanently establishes parity between parking benefit and transit/vanpool benefits.  It also extends parity retroactively to January 1, 2015.  The result is that the exclusion amount for 2016, parking, transit and commuter highway vehicles are $255 per month.  Prior to that law, transit and commuter highway vehicles were limited to $130 per month.

Commuters can receive both the transit and parking benefits (i.e., up to $510 per month). Employers can allow employees to use pretax dollars to pay for transit passes, vanpool fares and parking but not for bicycle benefits.

Best Workplaces for CommutersEmployers that subsidize at least $30 per month for transit or vanpool fares may meet the National Standard of Excellence and qualify for designation under NCTR’s Best Workplaces for Commuters.

Read over 35 Frequently Asked Questions, including questions about the bicycle commute option, in our National TDM and Telework Clearinghouse/Best Workplaces for Commuters‘ Support Center for more details about Commuter Tax Benefits.

The following summary was prepared to concisely but generally explain qualified transportation fringe benefits.  However, there are exceptions (e.g., partners, 2% owners in S-corps) so you should check with your tax adviser to meet your particular circumstances.  For definitions of terms, click on the URLs in the table, including the headers.

Qualified Transportation Fringe Benefits

CategoryTransitCommuter Highway Vehicle (e.g., vanpool)Qualified ParkingQualified Bicycle Commuting Reimbursement
Incentive LevelsUp to $255/month* for transit expensesUp to $255/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 $255/month** for parking at or near an employer’s worksite, or at a facility from which employee commutes via transit, vanpool, or carpoolUp to $20 per qualified bicycle commuting month. This exclusion for qualified bicycle commuting reimbursement includes any employer reimbursement during the 15-month period beginning with the first day of the calendar year for reasonable expenses incurred by the employee during the calendar year.
EmployerEmployers may give their employees up to $255/month for transit vouchers, commuter highway vehicle fares and/or commuter parking fees.

Private sector employers may be able to deduct the qualified transportation fringe benefit payments to employees as a business expense.
Employers reimburse their employees up to $20/month for qualified bicycle commuting; gets a tax deduction and saves over providing same value in gross income According to the IRS, “Generally, you can exclude qualified transportation fringe benefits from an employee’s wages even if you provide them in place of pay. However, qualified bicycle commuting reimbursements do not qualify for this exclusion.”
Employers may allow employees to use up to $255 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.
EmployeeMost employees may receive up to $255/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. Employee reimbursed up to $20/month for reasonable expenses related to commuting by bicycle.

Bicycle commuting benefit may not be combined with transit, commuter highway vehicle or parking benefits.
Employee pays for commute benefit with the pre-tax income up to the $255/month statutory limit and receives more after-tax spendable income.
Employee may combine the pre-tax benefit with employer subsidies up to $255/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 $130 per month in 2014 to $250 per month beginning January 1, 2015.  It was raised to $255 per month for 2016.

** tax free parking benefit limit increases from $250 per month in 2015 to $255 per month beginning January 1, 2016.

Qualified bicycle commuting month.
For any employee, a qualified bicycle commuting month is any month the employee: Regularly uses the bicycle for a substantial portion of the travel between the employee’s residence and place of employment and does not receive: Transportation in a commuter highway vehicle, Any transit pass, or Qualified parking benefits

.Reasonable expenses include: The purchase of a bicycle and Bicycle improvements,repair, and storage. These are considered reasonable expenses as long as the bicycle is regularly used for travel between the employee’s residence and place of employment.

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