Do you commute to and from work in a personal vehicle, using public transportation, or on a bike? Chances are you answered “yes.” Check with your HR department to see if your company offers a commuter benefits plan.
Commuter benefits are a staple for many employers’ benefits plans, especially in and around major cities. For those that commute, it’s no secret that these expenses – fuel, vehicle maintenance, parking, transit, and other fees – add up quickly. Thankfully there’s a way for you to save on something you’re already paying for.
Back in 1984, Congress came up with a way to help workers ease the financial stress of commuting to and from work. Most recently, in December 2015, the Protecting Americans from Tax Hikes (PATH) Act was passed. Part of the PATH Act raised the monthly exclusion limits for commuters on transit pass, commuter highway vehicle, and parking costs. Employers and employees both can take advantage of the tax benefits with a Commuter/Transit benefits plan.
With an employer-sponsored commuter benefit plan (also known as a Transit Account), both employers and employees reap tax savings. Employers save on payroll taxes if their plan is offered as a pretax contribution; the pretax exclusion doesn’t count towards an employee’s official compensation. Employees save through pretax contributions because it lowers their total gross income, which is taxable.
Depending on your employer’s plan, you may be able to get an account-linked debit card. The card is linked to an independent account that is funded by solely by your pretax contributions. You can use the card to pay for a handful of approved commuter expenses, such as parking fees, mass transit passes, and bicycle expenses.
An account-linked benefits debit card can help you keep better track of your transit purchases, and you don’t have to worry about filing for reimbursement. In some locations, debit cards have transit restrictions which allow the card to only be used where transit fare is sold; this feature enhances security and reduces the chances for fraud.
It’s simple. When you sign up for a transit plan, figure out how much you spend on commuting and specify how much to set aside (see deduction limits below). Each pay period, that amount is deducted from your paycheck before taxes are taken out. Those funds are put into a separate account and are used to pay for qualified commuter expenses. For bicycle benefits, those are funded only by the employer.
If your plan has an account-linked debit card, you can use the card to pay at the point of sale. You can also submit a claim to get reimbursed if you don’t have a card or if you cannot use the card for the purchase. If you have to file a claim, make sure you keep your receipts. Bike riders must first pay out of pocket, then file for reimbursement.
Keep in mind, there is no “use it or lose it” with a commuter plan. Any unused balance carries forward. Also, if you no longer participate in a commuter plan, you can spend the remaining balance.
The following chart provides an overview of expenses, as defined by IRS Section 132(a), regarding expense types and descriptions. Monthly pretax deduction limits are also below:
Any pass, token, fare card, voucher, or similar item for mass transit (bus, subway, train, ferry) OR a vehicle (operated by a third party) that sits at least 6 people, not including the driver
Parking lot fees for a lot that is located near the business premises
Commuter highway vehicle
Any highway vehicle that seats at least 6 adults, not including the driver
Includes purchase of the bicycle and improvements, repair, and storage
Commuter highway vehicle