What are Commuter Transit Tax Benefits and How Do They Help Me Now?

The tax code has a number of hidden gems that add up to a nice chunk of change and can save you money  over the year. Today, we’re looking at Commuter Transit Tax Benefits. These are benefits you can take advantage of if your employer offers pretax payroll deductions or helps cover your commuting costs.

This isn’t a tax benefit like a deduction or a credit that you’d take on your tax return. Rather, this is a benefit that avoids tax up front by providing employees savings on their daily commute to work through pre-tax payroll deductions.

The first benefit type is classified as a de minimis transportation benefit. “De minimis” 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 a cab fare to get home safely.

The next category type is known as Qualified Transportation Benefits, which includes several types of commuter-related perks.

Regular transportation in a commuter highway vehicle – This is similar to carpooling with a bunch of coworkers, except the employer is actually providing you with a ride. To qualify, the vehicle needs to seat six or more passengers and regularly run at least half full with employees to qualify. In addition, at least 80% of the miles must be driven between workers’ homes and the workplace. 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 a van service to get you to work. In order for this perk to stay tax free, there is a $315 per month limit for 2024 and a $325 per month for 2025 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 $315 per month for 2024  and $325 per month for 2025. This is in addition to the  transit pass limit discussed above.

As long as your commuter transit benefits stay within the annual limits, you won’t see them reported as taxable income on your W-2. For 2025, that could mean up to $7,800 in pre-tax savings. This not only cuts your tax bill, keeps more money in your pocket, but also contributes to a cleaner planet. Those are three hidden gems that you shouldn’t pass up!