Lawmakers provided certain taxpayers that commute to work with a nice gift to bring in the New Year. The tax-free fringe benefit for using public transportation as well as qualified parking was increased for 2013 and retroactively applied to 2012. The change can save certain taxpayers several hundred to a thousand dollars annually. Find out if you’ll be a beneficiary.
The tax-free fringe benefit for public transportation
This benefit works very similar to a flexible spending account for medical purposes. Employees typically allocate a certain amount of their paycheck towards qualified transportation expenses on a before tax basis. This election usually occurs at the beginning of the year, but many employers allow employees to change their allocation throughout the year.
What are qualified transportation expenses?
An employee can designate a certain amount of their paycheck towards public transportation and another amount for qualified parking. Public transportation includes mass transit to and from work, the costs of any pass, token or fare. Mass transit can either be part of a public system or a private company that provides commuters with a means to go get to and from work. Employees can also allocate before tax dollars towards qualified parking expenses. For instance, parking a vehicle in a facility that is near their place of work or parking at a location from where the employee commutes to work (i.e. parking your car at a ferry stop). All of these qualified expenses are discussed in greater detail in the Internal Revenue Code Section 132.
What are the new changes to the transportation fringe benefit?
Employees can now set aside $245 each per month for both public transportation and parking on a before tax basis for 2013. Even more, the mass transportation limit of $125 for 2012 and $240 for qualified parking has been retroactively adjusted in favor of the taxpayer. Specifically, lawmakers increased the mass transportation limit from $125 in 2012 to $245 and qualified parking from $240 to $245. This change is somewhat significant for taxpayers as the savings could translate into nearly $1,000 for those in the 28% to 33% tax bracket. If you are wondering how to treat 2012 excess benefits that were taxed, you’ll need to review the recent IRS released Notice 2013-8 or ask a tax professional.
More tax questions? Browse answers or ask 2013 tax questions online.
Related Articles
->The Payroll Tax Cut Increases To 6.2% In 2013
->What Job-Hunting Costs Can I Deduct On My Tax Return?
->Year End Flexible Spending Account Advice
->What Does The Fiscal Deal Mean For Your 2012 & 2013 Taxes?
->Tax Planning Strategies to Mitigate Your Risk for Higher Taxes in 2013
->The IRS Is Also Concerned About The Alternative Minimum Tax Patch
->Commuters Can Now Deduct 55.5 Cents Per Mile
