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Commuter Tax Benefits

Qualified Transportation Fringe Benefits Summary Table


(Last Updated on 11/2/18).

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.

The Tax Cuts and Jobs Act signed into law by the President on December 22, 2017 did make changes to Qualified Transportation Fringe Benefits.  Employers may still provide tax-free qualified transportation fringe benefits to employees for parking, transit and commuter highway vehicles.

In addition, an employer cannot deduct the expenses for providing tax-free qualified transportation fringe benefits. According several sources*, if an employer treats the transportation fringe benefits as taxable W-2 wages to the employee, the employer can deduct the expenses of providing those benefits.

Qualified bicycle commuting reimbursements, previously allowed up to $240 per year, can no longer be provided tax-free.  They can continued to provide the bicycle benefit as a taxable benefit.  

For 2018, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $260 (up from $255). Commuters can receive both the transit and parking benefits (i.e., up to $520 per month). Employers can allow employees to use pretax dollars to pay for transit passes, vanpool fares and parking.

 

logo of 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.

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 $260/month* for transit expensesUp 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 carpoolChange in 2018: Qualified Bicycle Commuting Benefit is no longer eligible as a tax free benefit.
EmployerEmployers 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.
EmployeeMost 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.

* Benefits Law Advisor

https://www.benefitslawadvisor.com/2018/01/articles/tax-cuts-and-jobs-act/2018-tax-reform-series-tax-law-changes-to-employee-fringe-benefits/ 
OlsenThielen CPAs and Advisors http://www.otcpas.com/advisor-blog/employers-lose-tax-deduction-transit-parking-benefits/ 
Arthur J. Gallagher & Co. https://www.ajg.com/media/1701946/directions-newsletter-january-2018.pdf 

** 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.

 

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