The commuter benefit

How it works

The worker elects a monthly amount for transit or vanpool and a separate monthly amount for parking, each capped at this year's official commuter benefit monthly limit (not yet verified here; see the official source below), and payroll takes it out before federal income tax and payroll tax. The money loads onto a transit card or a parking account run by a benefits vendor, and the election can usually be changed month to month rather than once a year. Unused transit money generally rolls forward while the worker stays employed, but it cannot be cashed out and is lost at separation. Some employers pay the benefit themselves instead of deducting it, which is also tax free up to the same cap. Bicycle commuting is not currently covered. The two caps are separate, so a worker who parks at a train station can use both.

What it gives

Each dollar of fare or parking costs less because it is paid with untaxed money.

The election can change monthly, which suits a schedule that shifts between remote and office days.

The transit and parking caps stack for a park and ride commute.

What it costs, or where the catch is

Money left in the account at separation is forfeited.

The cap is monthly, so an expensive commuter rail pass may exceed it and the rest is paid after tax.

The vendor cards sometimes fail at a turnstile, and a refund takes time.

A worked example

Noor spends $180 a month on a subway pass and $120 a month on parking at the station, which is $300 a month and $3,600 a year. Both run through her commuter benefit. At a 22 percent rate plus 7.65 percent payroll tax, the tax avoided is $3,600 times 0.2965, about $1,070 a year, which is close to three and a half months of her commuting cost.

Where it goes wrong

The common miss is leaving a large transit balance on the card when changing jobs, since the money does not come back.

Who confirms it for you

For your own numbers, the plan administrator or HR. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.