Save on Taxes on Your Parking, Commuting Costs

Businessman Running Through Subway Turnstile

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How can I get tax-free commuter benefits? Is the money available for parking, or do I need to use it for the subway or bus?

If your employer offers commuter benefits, you can set aside up to $255 pretax each month for parking and $255 for mass transportation (such as the train, subway, light rail, bus or ferry) in 2016. If you pay for both parking and mass transit—say, if you drive to a park-and-ride lot and then take a train or subway to work—you can take both benefits, setting aside up to $510 in pretax money each month. Your employer will automatically deduct the money from your pay, and it won’t be subject to income, Social Security or Medicare taxes.

These benefits (also called Section 132 transportation benefits) are larger than they were at the start of 2015, when you could set aside up to $250 for parking each month but only $130 for mass transportation. A law signed in December 2015 permanently bumped up the mass-transit limits to match the parking limits, effective retroactively for 2015, and then both benefits were increased to $255 in 2016 to account for inflation.

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The sign-up rules vary by employer. Most let you enroll in the program anytime during the year, but some let you sign up only during an open-enrollment period, such as every six months. Your employer may give you a variety of options for receiving the money. WageWorks, which administers benefit plans for employers, gives participants the option to use funds in their transportation account to buy passes directly from more than 650 transit providers around the country or to have the money loaded onto a smart card. It may also issue a debit card that people can use to purchase transit fare with the pretax money, says Dan Neuburger, president of commuter services for WageWorks.

The firm’s commuter savings calculator can help you estimate how much money you can save in taxes by participating in the program.

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As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.