Commuter Benefits Accounts – Tax Relief, Reimbursements, Qualified Expenses, and More!

Commuter benefits

Commuting to and from work can be quite costly. While most people don’t give a lot of thought to the costs of commuting as they do to health or child care, it can add up. Between daily tickets for bus or subway rides, parking lot fees, gasoline, and tolls, it can be more expensive than you think. On average, Americans spend between $2,000 – $5,000 each year on daily travel to the office. Thankfully, there’s a way to help cut down on those costs through a commuter benefits account!

Commuter benefits are a staple for many employers’ benefits plans, especially in and around major cities.

What is a Commuter Benefits Account?

The creation of commuter benefits goes back to 1984 when 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.

Perks for Employers and Commuters

With an employer-sponsored commuter benefits 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. Each pay period, the employee’s election is taken out of their paycheck (before taxes) and put aside for parking or transit passes.

How does a Transit Plan Work?

It’s simple. When you sign up for commuter benefits, first figure out how much you spend on commuting per month. After you get your estimate, you can then 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, which can then be used to pay for qualified commuter expenses.

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 contribute to a commuter plan, you can use the remaining balance for qualified expenses. However, commuter benefits are not portable; if you leave the company for any reason, you cannot take the account or money with you.

Another important perk is that you can have a parking plan and a transit plan at the same time. With a parking plan, you can pay for parking near your place of work; you can also pay parking fees at bus and train depots from where you would commute.

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.

Qualified Expenses and Monthly Deduction Limits

The following chart provides an overview of expenses, as defined by IRS Section 132(a), and monthly pretax deduction limits:

  2020 2019 2018 2017
Transit passes (Bus, subway, train, ferry) $270 $265 $260 $255
Commuter Vehicle (Can fit 6 adults, not including the driver) $270 $265 $260 $255
Parking (near place of work or commute) $270 $265 $260 $255

Non-qualified Expenses

Not all commuter-related expenses are eligible for reimbursement. Examples of non-qualified expenses include:

  • Highway and bridge tolls
  • Fuel
  • Mileage
  • Air fare
  • Expenses for regular, non-work related travel
  • Business travel

Account-linked Benefits Card

Depending on your employer’s plan, you may be able to get an account-linked benefits card to use at parking meters and garages, or places that sell mass transit fare. Having a benefits card can cut back on the amount of claims you have to file.

Depending on where you live, debit cards have restrictions which allow the card to only be used where transit fare is sold; this feature enhances security and reduces the chances for fraud. That way your commuter benefits funds aren’t spent at a gas station or at a movie theater, for example.

Even if you have a benefits card, always keep your receipts. Your benefits administrator may ask for proof of purchase.