What are Commuter Transit Tax Benefits and How Do They Help Me Now?
The tax code has a number of hidden gems, credits or deductions that add up to a nice chunk of change you can save on your taxes over the year. Today, we’re looking at Commuter Transit Tax Benefits, perks that you can use if your employer offers a subsidy or pre-tax payroll deductions for your commuting costs.
This isn’t a tax benefit that you’d take on your tax return, but a benefit that avoids tax up front by providing employees savings on their daily commute to work through pre-tax (federal and FICA) payroll deductions.
First, the de minimus transportation benefit. “De minimus” is Latin for “about minimal things” and when the IRS uses the term, they are stating there are some matters that are deemed too small to worry about for tax purposes. In this case, we’re talking about the occasional transportation benefit that an employee might get when working overtime, such as cab fare to get home safely.
Next are the four Qualified Transportation Benefits.
Regular transportation in a commuter highway vehicle – This is similar to carpooling, only the employer is providing the ride every day. The vehicle needs to seat six or more passengers and regularly run more than half full to qualify. 80% of the miles must be driven between worker’s homes and the workplace, presumably to avoid personal detour requests. In congested cities this is a great way to be green, provide a bit of employee camaraderie, and save the employees some money with no tax consequences.
Transit Passes – This includes a pass (e.g. the Metrocard) to get you on your local mass transit system, or let you hop onto to a van service to get you to work. Note: There is a $245 per month limit for combined commuter highway vehicle transportation and transit passes. Transit may include bus, ferry, rail, and vanpool.
Qualified parking – If there’s no on-site free parking, your company might provide for a paid spot near or at your office building. Qualified parking also includes the fees you’d pay to park your car at the commuter rail, mass transit, or the lot where that commuter highway vehicle picks you up. This benefit is tax free to you for up to $245 per month and is in addition to the $245 limit discussed prior.
How about really green? Your employer can reimburse up to $20 per month toward the purchase of a bicycle, as well as cost of repairs, improvements, and storage. The ‘qualified bicycle commuting months’ are only those months for which the other three Qualified Transportation Benefits are not received.
In a sense, this is an invisible benefit. So long as the value involved does exceed the limits discussed, you won’t see this listed as taxable income on you W2 at year end. Your wallet still enjoys the savings as these numbers can add up to $5880 that wont be taxed when you file your return. And the planet will thank you for burning a bit less gas in the process.