The new tax law eliminated a number of employer deductions for so-called “fringe benefits”. Starting in 2018, employers can no longer deduct the cost of providing qualified mass transit and parking benefits, except as necessary for ensuring the safety of an employee. But employee pre-tax Commuter Benefit programs are still standing. Here’s the story:
Section 132 of the Internal Revenue Code allows employers to offer employees the opportunity pay for certain transportation expenses on a pre-tax basis. Pre-tax means before income taxes and FICA. In other words, an employee’s take home pay can be increased, and maybe used to contribute to a 401(k) plan; and an employer avoids payroll taxes.
Qualified transportation expenses generally include payments for the use of mass transportation, e.g., train, subway, bus fares), for parking, and biking-related expenses. Amounts are indexed for inflation. The limits for 2018 are:
- $260 per month in transportation expenses.
- $260 per month in parking expenses.
- $20 per for biking-related expenses.
It can get better:
- Unlike Section 125 Plans, a Commuter Benefit Plan does not include a “use it or lose it penalty”.
- A Plan document is not required, but a written description is recommended.
- Form 5500 is not required.
One caveat: Be sure to understand how the compensation used to pay for a Commuter Benefit program fits into the definition of “Compensation” in your retirement plan.
Picture credit: (c) Can Stock Photo / ruslangrumble