MMC Benefits Handbook
Because all or a portion of your transportation costs are deducted from your pay on a before-tax basis (up to IRS-imposed limits), you have the potential to save on your transit and parking expenses.
For example, assume that…
Your transit pass costs:
$100 per month
Your tax rates are:
28% federal income tax
8% FICA (rounded)
4% state income tax
Total taxes = 40%
You would save in taxes:
$40 per month ($100 x 40%)
$480 per year ($40 x 12)
This example is for illustrative purposes and does not reflect an individual's financial situation. Your tax savings, which could be more or less, will depend on your residence state and applicable taxes. Please consult with a personal tax adviser for specific tax questions and advice.
Limits and Exceptions
Note that currently…
- federal tax law limits the amount of gross wages that you may spend each month on tax-free transit or parking. Currently, the limits are:
If your transit or parking expense is more than the federal before-tax limit, the excess will be deducted on an after-tax basis. For example, if you elect to purchase your $350 monthly transit pass through TRIP, $350 will be deducted from your pay, but only $300 of the $350 will be deducted on a before-tax basis. The remaining $50 will be deducted on an after-tax basis.
Note: In Pennsylvania and Mississippi, TRIP contributions are subject to state taxes.
What are the limits for before-tax spending if I incur mass transit and parking expenses as part of my daily commute?
Currently, the IRS federal limit for before-tax transit expenses is $300 per month for transportation in a qualified commuter highway vehicle and transit passes. The federal limit for before-tax parking expenses is $300 per month. If you incur transit and parking expenses, the limits remain separate and independent. For example, let's say you pay $350 per month for transit and $300 per month for parking. Since the before-tax limit for transit spending is $300 per month, $300 of your transit expenses will be deducted from your paycheck on a before-tax basis, while the remaining $50 will be deducted on an after-tax basis. For parking, your $300 monthly expense will be deducted in full on a before-tax basis.
My monthly transit pass costs $350. How do I pay for the $50 that cannot be deducted on a before-tax basis? Do I have to write a check for the balance?
No. If your transit or parking expenses exceed the before-tax limits set by the IRS, your remaining expenses are deducted from your paycheck on an after-tax basis. In this case, $300 in transit expenses will be deducted from your paycheck on a before-tax basis, while the remaining $50 will be deducted on an after-tax basis.
If the IRS audits my personal tax records, how can I access my HealthEquity records to document my use of the before-tax commuter benefit?
A record of all your HealthEquity transactions for the current calendar year and a limited number of prior years is available through the "Commuter" page on the HealthEquity website under "View Order History". For records no longer available online, you can contact HealthEquity directly for your account information.