If you provide free parking or public transportation reimbursements to your employees, you know these (with limits) can be treated as a business expense for tax purposes. What you may not know is that if your company doesn’t cover such expenses, you and your employees can pay for them with pre-tax dollars. (As with any tax-related issue, there are special qualifications and exceptions, so always check with your personal tax advisor before making a tax-related decision.)
According to the IRS, an employee can pay up to $130 per month for public transportation with pretax dollars (a reduction from previous years) and up to $250 per month, pretax, for parking. And, if you use a park-and-ride commuter program, you can take both benefits and pay up to $380 per month, pretax. Those who commute by bike can use up to $20 per month, tax free, but the restrictions and requirements are somewhat complex, so do your research before heading out to buy that new bike.
According to Wageworks, an online service that facilitates employee-directed tax-benefit related withholding, here are the forms of commuting and parking that are covered. The page also includes a calculator to help you estimate how much you might qualify per month:
- Bicycle (Eligible expenses include purchase of a bicycle, bicycle improvements and repair/storage of a bicycle.)
- Parking at or near work
- Parking at or near public transportation to get to work
- Vanpool (seating capacity of 6 or more adults, excluding driver, where 80% or more of miles for which vehicle is used is for transporting employees back and forth between work and home during which trips the vehicle is at least 50% full)
A commuter group left out:
Sorry to those who participate in bike sharing programs to commute to work. According to the IRS, those can’t be provided by employers tax-free or paid for pre-tax.