Your employer may provide you with transportation benefits that are tax free within certain limits. There are three categories of transportation benefits: (1) transit passes and commuter transportation, (2) parking, and (3) bicycle commuting. You may receive benefits from each category so long as the applicable monthly limit ($250 per month in 2015) is not exceeded. If the benefits exceed the monthly limit, the excess is treated as wages subject to income tax, Social Security, and Medicare tax.
Transportation benefits may be provided through a salary-reduction arrangement. An irrevocable salary-reduction election may be made for a monthly amount of benefits. The salary reduction for any month may not exceed the total limit. Unused salary reductions may be carried over to later months and from year to year. However, if you leave the company before using the carryover, the unused amount is forfeited and no refund is given.
Transit Passes and Commuter Transportation
The combined value of transit passes and commuter transportation is to $130 per month in 2015. If the value of benefits for any month does not equal the exclusion limit, the unused amount is lost and may not be carried over to other months.
Qualifying transit passes include tokens, fare cards, or vouchers for mass transit or private transportation businesses using highway vehicles seating at least six passengers. Qualifying van or bus pool vehicles must seat at least six passengers and be used at least 80% of the time for employee commuting; on average, the number of employees must be at least half the seating capacity.
The exclusion applies only to regular employees. For partners, more than 2% S corporation shareholders, and independent contractors who are provided transit passes, the IRS allows up to $ 21 per month as a tax-free de minimis benefit. If the monthly value exceeds $21, the full value is taxable and not just the excess over $21.
For regular employees, the value of employer-provided parking spots or subsidized parking is tax free in 2015 up to a limit of $ 250 per month. Parking must be on or near the employer’s premises, at a mass transit facility such as a train station or car-pooling center. The value of parking benefits exceeding $ 250 per month is taxable in 2015.
Parking benefits are to be valued according to the regular commercial price for parking at the same or nearby locations. For example, if an employer in a rural or suburban location provides free parking for employees and there are no commercial parking lots in the area, the employee parking is tax-free. Where free parking is available to both business customers and employees, the employee parking is considered to have “zero” value unless the employee has a reserved parking space that is closer to the business entrance than the spaces allotted to customers.
If the value of the right of access to a parking space for a month in 2015 exceeds $250, an employee will be taxed on the excess even if he or she actually uses the space for only a few days during the month. If the employee pays a reduced monthly price for parking in 2015, there is a taxable benefit for that month only if the price paid plus the $ 250 exclusion is less than the value of the parking. Commuter parking benefits for self-employed partners, independent contractors, or more-than-2% S corporation shareholders do not qualify for the $250 exclusion.
Reimbursements for the cost of a bicycle used for commuting, and for storing, repairing and improving the bicycle, are tax free up to $20 per month in 2015. The $20 monthly exclusion is allowed only for months in which the employee (1) regularly uses the bicycle for a substantial portion of the commute from home to the place of employment, and (2) does not receive either transit pass benefits or parking benefits. An employee who bicycles from home to a train or bus station and continues his or her commute from there cannot receive the bicycle benefit for any month for which they take advantage of the transit pass/ commuter vehicle benefit.