Employee Parking Reimbursement & Taxable Income

Commuter benefit programs are available only through an employer.

Commuter benefit programs are available only through an employer.

Traveling back and forth to work and paying for parking can get expensive. Under Internal Revenue Code Section 132(f), your employer can help employees out by letting them set aside a portion of their wages to pay for qualified commuting expenses. A pretax commuter benefits plan reduces your taxable income and ultimately your take-home pay. As you incur transportation and parking expenses during the year, you submit a form to your employer requesting reimbursement from your account.

Accounts

Commuter benefits have two parts: public transportation, which includes bus, ferry, van pool and rail; and qualified parking, which the IRS defines as parking an employer provides near or on the business premises. Qualified parking doesn’t pertain to parking near or at your home. Your payroll deductions for parking go into a separate reimbursement account from your transportation deductions. Each year, the IRS states the amount that you can put into both accounts. In 2013, you can sock away up to $245 into each account, a total of $490. Your employer can pay some of the cost, but your total cannot exceed the monthly limit.

Tax Exclusions

When your employer deducts your pretax parking payments from your wages, it doesn’t take any federal income tax or Medicare and Social Security taxes out. This process reduces your taxable income and gives you a higher take-home pay than if the benefit wasn’t pretax. Though many states exempt pretax commuter benefits from state income tax, there are exceptions. New Jersey, for instance, doesn’t exclude pretax transportation or parking from state taxes.

Reimbursement

To get paid from your parking reimbursement account, you must submit a reimbursement claim and the required parking receipts or documentation to your employer. You might be allowed to submit claims as often as you want, but your employer might limit the frequency in which it issues reimbursement checks, such as monthly. Employees must generally submit claims by a certain time after they incur the expense, such as within 90 days. If you don’t use all of the money in your account by the end of the year, your balance goes over into the next year.

Pretax Versus Post-Tax

A pretax parking plan causes a slight decrease in your Social Security and Medicare wages because Social Security and Medicare tax don’t come out of your payments. This process also causes a reduction in your Social Security benefits. If you don’t want to make pretax contributions, you may opt out of your employer’s pretax program by signing a waiver form. In this case, your employer must take taxes out of your parking payments; this process does not reduce your taxable income. You will, however, get credit for your Social Security benefits. Regardless of whether you make pretax or post-tax payments to your parking reimbursement account, you generally can’t claim commuting costs as a deduction on your tax return.

 

About the Author

Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.

Photo Credits

  • John Foxx/Stockbyte/Getty Images