My employer said that pretax benefits for public transportation just increased with passage of the fiscal cliff legislation, and that I could increase the amount of money I’m setting aside for commuting benefits. What are the new limits, and what do I need to do?
The law did increase the maximum amount you can set aside before taxes to use for mass transit, such as the subway, bus or train. In 2012, you could set aside $240 per month from your pay before taxes for parking but only $125 for public transportation. The new law boosted the mass transit benefit to be in line with the parking benefit, and both were also adjusted for inflation Now you can set aside $245 per month for public transportation, plus $245 per month for parking, for a total of $490 per month before taxes if you pay for both parking and public transportation to get to work. You generally set your contribution level for the year, but most employers let you make a change in any month -- for example, to suspend your contribution during a month when you’re on a business trip or vacation, or to adjust the allocation if you start driving less and taking mass transit more (or vice versa).
Because the limits were lower last fall, when you designated how much of your pay to set aside for transit benefits during open enrollment, you will probably need to fill out a new form to boost your contribution. (Some employers are asking all employees who use the transit benefits to fill out a new form, even if they aren’t increasing their contribution.) Contact your human resources department quickly so you can make changes in time for your next paycheck.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Besides increasing the contribution levels for mass transit for 2013, the new law also increased them retroactively for 2012. Employers are waiting for guidance from the IRS on how to handle the retroactive change, says Jody Dietel, chief compliance officer with WageWorks, which administers consumer-directed benefits.
For more information about pretax commuting benefits and a calculator to help estimate your potential tax savings, see WageWorks’ SaveSmartSpendHealthy.com.
-
QUIZ: Test Your Retirement IQQuiz Are you smarter than…everyone else? Test your retirement smarts with this quiz.
-
Where There's a Will, There's a Way Your Assets Will Be Distributed as You WishYour will is the backbone of a strong, adaptable estate plan that ensures what you leave behind goes to your selected beneficiaries. Without a will, state laws determine who gets your assets.
-
New Tax Rules: Income the IRS Won’t Touch in 2025Income Taxes From financial gifts to Roth withdrawal rules, here’s what income stays tax-free under the new Trump 2025 tax bill, and some information on what’s changed.
-
Three Popular Tax Breaks Are Gone for Good in 2026Tax Breaks Here's a list of federal tax deductions and credits that you can't claim in the 2026 tax year. Plus, high-income earners could get hit by a 'surprise' tax bill.
-
Tax Brackets 2025 Quiz: How Much Do You Know?Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
Retirees Face a Growing Capital Gains Tax Trap: What's Next?Home Sales A changing housing market and unchanged IRS exclusion amounts can add up to a headache for many homeowners. Will Congress offer a fix?
-
Mortgage Refinance in 2025? These Tax Breaks Can Boost Your SavingsTax Breaks Refinancing your mortgage comes with tax implications, but also opportunities to deduct certain expenses on your return.
-
Standard Deduction 2025 Quiz: How Much Do You Really Know?
Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
New Bill Would End Taxes on Social Security Benefits in 2026: What Retirees Should KnowTax Law Congress could look to high earners to help offset lost revenue and possibly shore up the Social Security program.
-
New $6,000 'Senior Bonus' Deduction: What It Means for Taxpayers Age 65-PlusTax Changes If you’re an older adult, a new bonus tax deduction could provide a valuable tax benefit. Here's how it works.
