If you travel to work and pay for parking or use public transportation, you should be mindful of the pre-tax benefit you can receive by setting aside part of your paycheck for those costs. Many employers offer a pre-tax commuter benefit program through companies such as WageWorks to help you save on taxes and commuting costs.
How much can you set-aside?
Each month, you can set aside $130 per month for public transportation. This includes the subway, bus, ferries and trains. If you drive to work and pay for parking, you can set aside upwards of $250 per month. What’s more, if you happen to be one of the few who pay for parking and use public transportation such as a ferry, the total pre-tax benefit is $380. This is referenced in the Internal Revenue Code Section 132 and the Transportation Equity Act for the 21st Century.
How do I save on taxes?
The monies that you set aside with the commuter benefits program are not subject to the 7.65% Social Security and Medicare tax. Plus, the benefit reduces your adjusted gross income. This can be material as the annual tax deduction could be anywhere from $1,600 to $4,560, depending if you qualify for the public transportation or the parking benefit or both.
What if I don’t need to use the full monthly limit?
Most commuting benefit providers allow you to manage your account in real-time. Meaning, if you take 3 weeks off of work, you can stop the program and then reactivate it when you return.
What if you use a bike to travel to work?
Your employer can reimburse up to $20 per month toward the purchase of a bicycle, as well as the cost of repairs, improvements, and storage. Please note that the commuter bicycle benefit can only be received when you aren’t using the other commuter tax benefit programs.
Will there be any changes to commuter benefits programs in 2014?
Yes, congressional leaders are now discussing ways to revise the existing programs. We believe it’s quite possible that policymakers will increase these limits for 2014.
More Questions? Ask your tax questions online or find a cpa online.
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