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.

In 2013, under the fiscal cliff deal, Congress changed the effective date of Qualified Transportation Fringe Benefits (Section 132(f)) and extended its end date through December 31, 2013. The American Taxpayer Relief Act of 2012 now provides the option for most employers to provide transit and vanpool tax free benefits to their employees up to $245* per month. Previously, under the American Taxpayer Relief Act of 2012, employers may provide workers with up to $240 per month in tax-free transit and commuter highway vehicle (e.g., vanpool) benefits.  The Act made this change effective as of January 1, 2012.** Prior to this change, the maximum level for transit and vanpool benefits was $125 per month for 2012.

The monthly limitation under Section 132(f)(2)(A) Qualified Transportation Fringe Benefits regarding the aggregate fringe benefit exclusion amount for vanpools (commuter highway vehicles) and transit passes is $245. The monthly limitation under Section 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $245. Commuters can receive both the transit and parking benefits (i.e., up to $490 per month). Employers can allow employees to use pretax dollars to pay for transit passes, vanpool fares and parking but not for bicycle benefits.

* Under Section 203 of the Administrative Taxpayer Relief Act of 2012, parity between the parking and transit/commuter highway vehicle benefits was reinstated at $240 per month and retroactively increased monthly transit benefit limit for 2012 from $125 per month to $240 per month.  Subsequently, the IRS applied a cost of living adjustment to the $240 per month value.  According to the IRS, “For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place). Details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013.”  Source: http://www.irs.gov/uac/Newsroom/Annual-Inflation-Adjustments-for-2013

**  Notice 2013-8 provides guidance for Section 203 of the Administrative Taxpayer Relief Act of 2012, which retroactively increased monthly transit benefit limit for 2012 from $125 per month to $240 per month. This notice provides a special correction procedure for employers who paid benefits in excess of $125 per month in 2012 and wish to make corrections on their fourth quarter Form 941. Notice 2013-8 will be published in Internal Revenue Bulletin 2013-7 on February 11, 2013.

Read over 30 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 advisor to meet your particular circumstances.

2013

Transit Vanpool Qualified Parking Qualified bicycle commuting reimbursement
Incentive Levels Up to $245/month*** for transit expenses Up to $245/month*** for vanpool expenses Up to $245/month**** for parking at or near an employer’s worksite, or at a facility from which employee commutes via transit, vanpool, or carpool Up 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 expensesincurred by the employee during the calendar year.
Employer Tax Benefit Employers give their employees up to $245/month*** to commute via transit; gets a tax deduction and saves over providing same value in gross income or Employers allow employees to use pre-tax income to pay for transit and employers save on payroll tax (at least 7.65% savings) or A combination of both up to statutory limits Employers give their employees up to $245/month*** to commute via vanpool; gets a tax deduction and saves over providing same valuein gross incomeor Employers allow employees to use pre-tax income to pay for vanpooling and employers save on payroll tax (at least 7.65% savings) or A combination of both up to statutory limits Employers give their employees up to $245/month**** for qualified parking; gets a tax deduction and saves over providing same valuein gross income orEmployers allow employees to use pre-tax income to pay for qualified parking and employers save on payroll tax (at least 7.65% savings) or a combination of both up to statutory limits Employers reimburse their employees up to $20/month for qualified bicycle commuting; gets a tax deduction and saves over providing same valuein gross income According to the IRS, “Generally, you can exclude qualified transportation fringe benefits from an employee’s wages even if youprovide them in place of pay. However, qualified bicycle commuting reimbursements do not qualify for this exclusion.”
Employee Tax Benefit Employee receives up to $245/month*** tax free for transit or vanpool (this value will not appear on their W-2 form) or Employee pays for commute benefit with the pre-tax income and saves on income tax or A combination of both Employee receives up to $245/month*** tax free (not on their W-2 form) or Employee pays for commute benefit with the pre-tax income and saves on income tax or A combination of both Employee receives up to $245/month**** tax free (not on their W-2 form) for qualified parking or Employee pays for commute benefit with the pre-tax income and saves on income tax or A combination of both Employee reimbursed up to $20/month for reasonable expenses related to commuting by bicycle

*** tax free transit and vanpool benefit limit increased from $125 per month in 2012 to $240 per month beginning January 1, 2012 (the ACT made it retroactive for 2012 calendar year). For 2013, the amount was increased to $245.

**** tax free parking benefit limit increased from $230 in 2011 to $240 per month beginning January 1, 2012. For 2013, the amount was increased to $245.

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.

Additional Resources

 

SENATE PASSES COMMUTER TAX CREDIT VIA $109 BILLION TRANSPORTATION BILL

On Wednesday, March 14, Senate passed a $109 billion transportation bill that includes a commuter tax benefit that allows mass transit users to take $240 of their pre-tax income every month to pay for these transportation costs.  There was a previous consumer benefit in place for 2011 that allowed for $230 a month in mass transit expenses, but that measure ended in December of last year. This current transportation bill must now pass the U.S. House of Representatives.

Workers in the tri-state NY, NJ and CT areas can reap real benefits from this commuting tax credit.  A New Yorker earning $75,000 a year that purchases an unlimited-ride monthly MetroCard  for $104/month can save over $500 a year in taxes if they take part in this pre-tax paycheck deduction; the tax benefit effectively pays for five months of MetroCard expenses this way.  Once this transportation bill passes the House, accounting services personnel should notify employees of this change for 2012 and assist in setting up these pre-tax deductions from worker paychecks.

Author: Pete Marino