How to Use Commuter Benefits for Transit & Parking

Commuter benefits programs allow employees to use pre-tax income for qualified work-related commuting expenses. By setting aside a portion of gross pay before taxes, these programs lower an individual’s taxable income, resulting in savings on federal income, Social Security, and Medicare taxes. This makes commuting more affordable for employees who use public transportation or incur parking costs to get to their place of employment.

Eligibility and Enrollment

Participation in commuter benefits programs is generally available to common law employees. This typically includes full-time and part-time workers, but it excludes self-employed individuals and independent contractors. Employers can offer these benefits, but must do so uniformly across their workforce.

Employees typically enroll through their employer’s human resources department or a designated third-party benefits administrator. Many administrators provide an online portal for signing up and managing benefit elections. During enrollment, employees commonly provide personal identification details and specify their monthly contribution amount for transit, parking, or both.

Enrollment periods usually coincide with a company’s annual open enrollment, allowing employees to elect or adjust benefits for the upcoming plan year. New hires are often given an enrollment window, typically within 30 days of their start date, to sign up immediately. Employees can generally change their contribution amounts monthly, with deadlines like the 10th or 15th for changes to take effect the following month.

Understanding Eligible Expenses

Commuter benefits cover specific expenses for traveling to and from work, as defined by Internal Revenue Code Section 132(f). Qualified transit expenses include passes, tokens, fares, or vouchers for mass transit vehicles like buses, subways, trains, or ferries. This also includes qualified vanpool expenses, which involve transportation in a commuter highway vehicle seating at least six adults, with at least half the seating capacity used by employees for commuting, and at least 80% of the mileage reasonably expected to be for commuting purposes.

Qualified parking expenses cover parking at or near the employer’s business premises. This includes parking at a location from which the employee commutes to work by mass transit, such as a park-and-ride lot. Examples include parking garage fees, meter costs, or monthly permits. However, parking at an employee’s residence is not an eligible expense.

The Internal Revenue Service (IRS) sets monthly pre-tax limits for these benefits, which are subject to annual adjustments. For 2024, the maximum monthly pre-tax exclusion for qualified transit and vanpooling benefits is $315, and the limit for qualified parking benefits is also $315. These limits are per employee per month, meaning an individual could exclude up to $630 monthly if they incur both transit and parking expenses up to the maximum for each. Employers provide these limits to employees during enrollment.

Methods of Using Benefits

After enrollment, employees access their commuter benefits through various direct payment methods. Many benefit administrators issue pre-loaded debit cards for transit or parking expenses. These cards operate like standard debit cards but are programmed to only work at merchant codes associated with eligible transit providers or parking facilities. Some employers or administrators may also provide vouchers for transit passes or parking directly with a specific vendor.

In some cases, direct payment arrangements might be in place. This allows the employer or administrator to directly pay the transit authority or parking provider on behalf of the employee, often for monthly passes or permits. The employee’s pre-tax contribution is then deducted from their paycheck to cover the cost.

For expenses not paid directly with a benefit card or voucher, a reimbursement process is available. Employees pay for the eligible expense out-of-pocket and submit a claim through their benefit administrator’s online portal or mobile application. Required documentation includes an itemized receipt detailing the service, date, and cost. If a payment or reimbursement is denied, it means the vendor’s merchant code does not align with eligible categories, the expense is not qualified, or the transaction exceeds the available balance.

Managing Your Commuter Account

Ongoing management of a commuter benefits account involves monitoring balances and making necessary adjustments. Most benefit administrators provide an online portal or a dedicated mobile application where employees can check their account balance and review transaction history. This allows individuals to track spending and ensure funds are used appropriately.

Employees can typically change their monthly contribution amount to their commuter benefits account. These adjustments are usually subject to specific monthly deadlines, such as the 15th, to ensure the change is reflected in the following month’s payroll deduction and benefit allocation. This flexibility allows individuals to align contributions with fluctuating commuting needs.

Rules regarding unused funds vary slightly by program, but generally, commuter benefits funds can roll over from month to month and year to year, provided the employee remains employed. Unlike some other pre-tax accounts, there is no “use-it-or-lose-it” rule for commuter benefits, meaning accumulated funds typically remain available for future eligible expenses. Upon termination of employment, however, any unused funds may have a grace period, often 90 days, during which the former employee can still use the remaining balance for eligible expenses. After this grace period, any remaining funds are typically forfeited to the employer or administrator.