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Benefits Spotlight: Tax-Free Commuter Benefits

By Ruth M. Wimer and Kara A. Getz
February 01, 2004

A relatively new and Congressionally approved benefit for employees is the provision of transportation benefits ' such as parking; subway, bus, train fare, or vanpooling ' on a tax-free basis. By reducing the cost of commuting, an employer can reap many rewards including appreciation of employees of their tax savings, reduced employment taxes paid by the employer and even reduced stress by employees. However, although Congress attempted to allow employers to provide tax-free commuter benefits to employees in a simple fashion, there are some esoteric rules of which employers should be aware.

Overview of IRC '132(f)

Internal Revenue Code (IRC) '132 allows employers to offer qualified transportation fringe benefits to their employees on a pre-tax basis. IRC '132(f) defines the term “qualified transportation fringe” as any of the following provided by an employer to an employee:

  • Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee's residence and place of employment;
  • Any transit pass; and
  • Qualified parking.

Employers can exclude from employees' monthly wages an amount not in excess of $195 for qualified parking for tax years beginning in 2004. In addition, the monthly limitation for transportation in a commuter highway vehicle and any transit pass is $100 for tax years beginning in 2004.

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