Transit & Parking Benefits
Employees are allowed to set aside pre-tax compensation in two categories – transit and parking. In the transit category, qualified commuter expenses generally include expenses for the use of mass transportation – train, subway, bus, transportation in a commuter highway vehicle, transit passes, and qualified bicycle reimbursement.
Transit and parking benefits are governed by IRS Code Section 132. The transit and parking benefit does not include a “use it or lose it” penalty, as is the case with Healthcare FSAs and Dependent Care FSAs. Federal income tax and FICA taxes are not imposed on amounts set aside. Depending on state law, employees may also avoid state and local income taxes.
Employers also get tax benefits because they pay no payroll taxes on the income set aside by the employee and receive an equivalent deduction from business income.
Transit and parking maximum contributions are set by the IRS and are generally adjusted annually for inflation.
The 2023 limits are $300 monthly for transit and $300 monthly for parking. The bicycle commuting limit is $20 monthly.