Tax Benefits for Using Public Transportation
You can set aside more of your pay before taxes now to pay for mass transit.
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
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
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.
-
The 1-Month Rule for Setting Your Car Insurance DeductibleThe ideal car insurance deductible balances risk and savings. Here's how to find it.
-
Yes, Artificial Intelligence Stocks Are BoomingIt's fair to ask about the latest tech boom, "Is it really different this time?"
-
Estate Plan Details to Discuss (And What to Keep Private)Gen Xers and Millennials would like to know if they're going to inherit (and how much), but Baby Boomers in general don't like to talk about money. What to do?
-
Tax Season 2026 Is Here: 8 Big Tax Changes to Know Before You FileTax Tips Due to several major tax rule changes, your 2025 return might feel unfamiliar even if your income looks the same.
-
2026 State Tax Changes to Know Now: Is Your Tax Rate Lower?Tax Changes As a new year begins, taxpayers across the country are navigating a new round of state tax changes.
-
3 Major Changes to the Charitable Deduction for 2026Tax Breaks About 144 million Americans might qualify for the 2026 universal charity deduction, while high earners face new IRS limits. Here's what to know.
-
Retirees in These 7 States Could Pay Less Property Taxes Next YearState Taxes Retirement property tax bills could be up to 65% cheaper for some older adults in 2026. Do you qualify?
-
Estate Tax Quiz: Can You Pass the Test on the 40% Federal Rate?Quiz How well do you know the new 2026 IRS rules for wealth transfer and the specific tax brackets that affect your heirs? Let's find out!
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
Tax Refund Alert: House GOP Predicts 'Average' $1,000 Payouts in 2026Tax Refunds Here's how the IRS tax refund outlook for 2026 is changing and what steps you can take now to prepare.
