Take Advantage of Your Smart Commute!
Tax Benefits of Taking Transit, Vanpooling or Biking
If you commute by riding transit, vanpooling or bicycling, there are great ways for you to save money by deducting your transit pass, vanpool fare, and bicycling expenses through federal tax benefits.
Transit and Vanpool
The IRS allows employers to withhold a set amount of an employee’s pre-tax income for vanpool or bus commuting costs. Employers may also provide a monthly fare subsidy as a part of the qualified IRS Transportation Fringe Benefit, under section 132(F) of the IRS tax code. This lowers an employee’s taxable income, putting more money in their pocket. It also lowers the employer’s FICA burden. It’s a win-win-win. For the employee, the employer and traffic congestion! To learn more, review the 36 Commuting Solutions Pre-Tax Commuter Benefit FAQ sheet.
- Transit and vanpool tax benefits do require employer involvement, so your employer needs to be the one to set up the program. Such a program can work in two ways (or a combination of both):
- Employer-paid program: Employers give their employees up to $240/month to commute using transit or a vanpool. In return, the employer gets a tax deduction.
- Employee pre-tax program: Employers allow employees to use pre-tax income up to $240/month to pay for transit and employers save on payroll tax. As a result, employees save money on income taxes by reducing the taxable amount: 4.63% in state income taxes, and between 10 – 30% in federal taxes.
- For general information about commuter tax benefits, see the University of Florida’s Commuter Tax Benefits summary table or the Clean Air Campaign’s Commuter Choice Tax Benefits page.
The Bicycle Commuter Tax Benefit went into effect January 1, 2009. This allows employers to offer a fringe benefit of $20 per month for employees for the purchase of a bicycle and any bicycle improvements, repairs, or storage costs. However, employees cannot receive the bicycle commuter tax benefit in addition to transit or vanpool tax benefits
Employers reimburse their employees up to $20/month for qualified bicycle commuting. The employer gets a tax deduction and saves over providing same value in gross income. Employers cannot exclude qualified transportation fringe benefits from an employee’s wages, even if they are provided in place of pay.
For more information about the Bicycle Commuter Tax Benefit, see the League of American Bicyclists Bicycle Commuter Tax Provision FAQ or the University of Florida’s Commuter Tax Benefits Summary Table.
To see the overall Employer’s Tax Guide to Fringe Benefits from the IRS, click here.