Commuter Benefit Plans (CBPs), governed by Internal Revenue Code (IRC) Section 132(f), allow employees to pay for certain workplace mass transit and parking expenses on a tax-free basis through payroll deductions. This provides up to 40% tax savings for employees.
A commuter benefit plan allows you to:
- Set aside pre-tax dollars, up to the IRS limits, to pay for eligible mass transit and parking expenses.
- Change elections.Election changes are not limited by a plan year and can generally be updated monthly. See your employer for the specific process to update your elections.
- Carry over unused funds.You carry over unused funds from month-to-month. If your needs change or you have built up a balance, you can adjust or even stop your elections while you continue to use your existing balance.
There are two primary commuter benefit accounts—a mass transit account and a parking account. If you have both expenses, you will need to make separate elections for each.
Mass Transit Account
A mass transit account allows participants to set aside funds on a tax-free basis to pay for eligible workplace mass transit expenses.
What are the limits for a mass transit account?
The maximum tax-free election for qualified mass transit, as set by the IRS, is $260/month for 2018 and $255/month for 2017.
What mass transit expenses are eligible under a CBP? Qualified mass transit must (a) occur in a commuter highway vehicle (e.g. bus, train, subway, vanpool) and (b) be used in connection with travel between a residence and place of employment.
A parking account allows participants to set aside funds on a tax-free basis to pay for eligible workplace parking expenses.
What are the limits for a parking account?
The maximum tax-free election for qualified parking expenses, as set by the IRS, is $260/month for 2018 and $255/month for 2017.
What parking expenses are eligible under a CBP? Qualified parking may include either
(a) parking provided to a participant on or near the business premises of the employer or
(b) on or near a location from which the participant commutes to work by mass transit. Parking on or near property used by the participant for residential purposes is not considered an eligible expense.