Are commuter benefits use it or lose it? It’s a question that has been on the minds of many employees who are offered commuter benefits as part of their compensation package. For those who are unfamiliar with what commuter benefits are, they are a type of employee benefit that covers transportation costs. The benefits can be used towards expenses like public transportation, ridesharing services, or even parking fees. However, the catch is that many employers have a use it or lose it policy when it comes to these benefits.
It’s easy to get lost in the hustle and bustle of daily life, but it’s important that we take the time to evaluate and make use of the benefits that are available to us. Commuter benefits are just one example of an oft-overlooked perk that can make a big difference in our lives. By using these benefits, employees can save hundreds if not thousands of dollars each year on their commute, while also doing their part to reduce traffic congestion and greenhouse gas emissions. So, are commuter benefits use it or lose it? The answer is clear – employees should take full advantage of these benefits while they can.
There are a lot of reasons why employees might hesitate to make use of their commuter benefits. Perhaps they are unsure of how to use them, or they don’t want to deal with the hassle of submitting receipts. However, the benefits of using these perks far outweigh the minor inconveniences. Not only do they save employees money, but they also contribute to a healthier, more sustainable environment. In this day and age, every little bit counts – so why not make use of everything that’s available to us, including commuter benefits?
What are Commuter Benefits?
Commuter benefits are a type of employee benefit that enables employees to pay for their commuting expenses using pre-tax dollars, which means they can save money on their taxes. They are also known as transportation benefits, transit benefits, or qualified transportation fringes. Commuter benefits can be used to pay for qualified transportation expenses such as parking fees, transit passes, ride-sharing services, and bicycle commuting expenses. These benefits are offered by some employers as a way of supporting their employees and making commuting more affordable for them.
Regulations on Commuter Benefits
Commuter benefits are a popular incentive provided by employers to encourage their employees to use more environmentally friendly modes of transportation to get to work. These benefits allow employees to use pre-tax dollars to pay for transit expenses, such as bus, train, or subway fares, and parking fees. However, like any employee benefit, commuter benefits have specific regulations that dictate how they can be used.
- Eligible Expenses: The IRS has identified qualifying commuter expenses that are eligible for pre-tax payment. These include transit passes, commuter highway vehicle transportation, and qualified parking expenses. Bicycles and bike-sharing programs are also eligible expenses, subject to certain limitations.
- Annual Limits: The amount that an employee can contribute to their commuter benefit account is determined by the employer. However, there are annual limits set by the IRS that employers must adhere to. For example, in 2021, the monthly limit for transit and vanpooling expenses is $270, while the monthly limit for parking expenses is $270.
- Use It or Lose It: One of the unique features of commuter benefits is that they operate on a use it or lose it basis. This means that any funds contributed to an employee’s commuter benefit account that are not used by the end of the plan year are forfeited. However, some employers may offer a grace period or carryover option to allow employees to use any remaining funds from the previous year’s account.
In addition to these regulations, it is important to note that employer-provided commuter benefits are subject to compliance with federal and state laws, as well as any applicable local ordinances. Employers must ensure that their commuter benefit plans meet all applicable legal requirements and are properly administered to avoid any potential legal issues.
Qualified Transportation Fringe Benefits
Qualified Transportation Fringe Benefits (QTFBs) are commuter benefits that allow employees to set aside pre-tax dollars to pay for transportation and parking expenses related to commuting to work. QTFBs are tax-free for employees and allow employers to save on payroll taxes. Employers can also deduct the cost of these benefits on their tax returns.
There are several requirements that QTFBs must meet to qualify for tax-free treatment:
- The benefit must be provided to employees
- The benefit must be for transportation or parking expenses related to commuting to work
- The benefit cannot exceed the monthly statutory limits as set by the IRS
- The benefit cannot be offered as a cash reimbursement
The IRS sets the monthly statutory limits for QTFBs each year. In 2021, the monthly limit for transit and vanpooling expenses is $270, while the monthly limit for parking expenses is also $270.
Compliance with State and Local Laws
In addition to complying with federal regulations, employers must also ensure that their commuter benefit plans comply with any applicable state and local laws. Some states, such as California and New Jersey, have their own commuter benefit laws that require certain employers to offer a commuter benefit program to their employees. Employers in these states must make sure that their commuter benefit plans meet all state-specific requirements.
Local ordinances may also affect how employers offer their commuter benefits. For example, some cities have ordinances that require employers to provide transit benefits to their employees or offer a certain number of pre-tax dollars for transit expenses. Employers must be aware of all applicable local ordinances and ensure that their commuter benefit plans are in compliance.
| State | Commuter Benefit Requirement |
|---|---|
| California | Employers with 50 or more full-time employees in the state must offer a commuter benefit program |
| New Jersey | Employers with 20 or more employees in the state must offer a commuter benefit program |
Commuter benefits have become an increasingly popular way for employers to incentivize their employees to use more sustainable transportation options. However, employers must be aware of all applicable regulations and requirements to ensure that their commuter benefit plans are compliant with federal, state, and local laws.
Expiration of Commuter Benefits
If you’re part of a commuter benefits program through your employer, it’s important to understand the rules around expiration of those benefits. Essentially, there are two types of commuter benefits: pre-tax and employer-provided subsidies.
Pre-tax contributions allow employees to set aside a certain amount of their pre-tax income to be used for commuting expenses. These funds do not expire and can be rolled over from year to year. However, it’s important to note that pre-tax contributions are subject to an annual maximum set by the IRS. In 2021, the maximum amount that an employee can contribute to a commuter benefits account is $270 per month for transit (e.g. subway, bus, train) and $270 per month for qualified parking.
Employer-provided subsidies, on the other hand, are funds that an employer offers to help cover the cost of an employee’s commuting expenses. Depending on the specific program, these subsidies may expire at the end of the calendar year or at the end of the plan year.
- If your employer’s commuter benefits program has a calendar year deadline, any unused funds will expire on December 31st. This means that if you don’t use your full subsidy by the end of the year, you will forfeit the remaining funds.
- If your employer’s commuter benefits program has a plan year deadline, the expiration date will depend on the specific plan. For example, if your employer’s plan year runs from July 1st to June 30th, any remaining funds from the previous plan year will expire on June 30th. It’s important to check with your employer to determine when your plan year begins and ends.
To avoid losing any unused funds, it’s important to make sure you use your commuter benefits before they expire. This means planning ahead and budgeting your funds accordingly. If you have any questions about the expiration of your commuter benefits, be sure to reach out to your employer’s HR department or your commuter benefits provider for clarification.
| Benefit Type | Expiration Date |
|---|---|
| Pre-tax contributions | Do not expire |
| Employer-provided subsidies (calendar year deadline) | December 31st |
| Employer-provided subsidies (plan year deadline) | Varies by plan |
Understanding the expiration of your commuter benefits is an important part of maximizing the value of your benefits program. By taking the time to plan ahead and use your funds wisely, you can avoid losing any money and make the most of your available benefits.
Restrictions of Commuter Benefits
Commuter benefits are a valuable perk for employees who are looking for ways to save money on their daily commute. However, there are certain restrictions that come with using these benefits that employees should be aware of.
- Limitations on Expenses: One of the primary restrictions of commuter benefits is that they are limited to certain expenses. For example, commuter benefits can only be used for qualified transportation expenses, which includes expenses related to mass transit or vanpooling. This means that expenses related to ride-sharing services, such as Uber or Lyft, are generally not covered.
- Annual Limits: There are also annual limits on the amount of money that employees can contribute to their commuter benefits account. As of 2021, the maximum amount that can be contributed is $270 per month for qualified transportation expenses and $270 per month for qualified parking expenses. If an employee exceeds these limits, they may face tax penalties.
- Use it or Lose it: Additionally, commuter benefits are subject to a use-it-or-lose-it rule. This means that any funds that are contributed to an employee’s commuter benefits account must be used by the end of the plan year, or they will be forfeited. Some plans may allow for a grace period or rollover of funds, but this varies depending on the employer’s plan.
It’s important for employees to fully understand these restrictions before utilizing their commuter benefits. By doing so, they can maximize their savings and avoid any unexpected tax penalties or forfeitures.
Below is a table highlighting the annual limits for commuter benefits in 2021:
| Expense Type | Maximum Monthly Contribution |
|---|---|
| Qualified Transportation Expenses | $270 |
| Qualified Parking Expenses | $270 |
Flexible Spending Accounts for Commuters
If you’re a commuter, you might be familiar with the pre-tax benefit of using a flexible spending account (FSA) to pay for eligible transportation expenses. An FSA is a type of account that allows you to put aside pre-tax dollars from your paycheck to pay for certain expenses, such as commuting costs, parking, and even bike-sharing expenses.
But what happens if you don’t use up all the money in your FSA by the end of the year? These accounts operate on a “use it or lose it” basis, meaning that if you don’t spend all the money by the designated deadline, you forfeit any leftover funds.
- Eligible Commuting Expenses: First, it’s important to know which commuting expenses are eligible for FSA reimbursement. These expenses include public transportation, vanpooling, and parking fees. Additionally, bike-sharing and bike-commuting expenses are also eligible, thanks to a change in tax law in 2018.
- FSA Contribution Limits: For 2021, the maximum amount you can contribute to your FSA for commuting expenses is $270 per month, or $3,240 for the year. However, keep in mind that your employer may set a lower limit for your FSA contributions.
- Deadline for Using FSA Funds: The deadline for using your FSA funds for commuting expenses varies depending on your employer’s plan. Generally, you’ll need to use the funds by the end of the calendar year, or by March 15 of the following year if your plan allows for a grace period.
If you’re unsure how to properly use your FSA funds or if you have questions about your employer’s contributions or FSA policies, it’s best to consult with your HR representative or benefits administrator.
| Pros | Cons |
|---|---|
| Reduces taxable income | Use it or lose it policy |
| Can be used for a variety of commuting expenses | May have contribution limits |
| May have a grace period for using funds | May not cover all commuting expenses |
Overall, FSA accounts are a great way to save money on eligible commuting expenses. Just be sure to use up all the funds before the deadline to avoid losing any money.
Types of Transit Benefits
Commuter benefits are a great way to save money on commuting expenses, but not all options are created equal. Employers can offer a variety of transit benefits to their employees, depending on their needs and budget. Here are some of the most common types:
- Transit passes: Employers can provide their employees with transit passes that can be used on buses, trains, or other forms of public transit. These passes can be purchased in bulk and may be subsidized by the employer to reduce the cost for employees.
- Parking: Some employers may offer parking benefits to employees who drive to work. This may include free or discounted parking lot access or paying for parking at a nearby garage.
- Bike benefits: For those who prefer biking to work, employers may offer benefits such as bike storage, showers, and lockers. They may also offer financial incentives for employees who bike to work, such as reimbursing for bike repairs or offering a cash incentive for each trip.
Employers can also offer a combination of these benefits to best suit their employees’ needs, or they may choose to offer pre-tax commuter benefits through a commuter benefits program. This allows employees to use pre-tax dollars to pay for commuting expenses, which can save them money on their taxes.
It’s important to note that some commuter benefits are “use it or lose it.” For example, transit passes may be valid only for a certain period of time, and any unused passes may not be carried over to the next month. Parking benefits may only be valid for a certain number of hours per day or per month. Make sure you understand the rules of your particular benefits before you enroll.
| Type of Benefit | Benefits |
|---|---|
| Transit Passes | Cost-effective, easy to use, and good for the environment |
| Parking | Convenient for drivers, may save on parking expenses |
| Bike Benefits | Great option for those who prefer biking, some incentives may save money on repairs or new gear |
Overall, commuter benefits can be a great way to save money on commuting and reduce environmental impact. Knowing the different types of benefits available and understanding their usage rules can help employees make the best decision for their commuting needs.
Tax Implications of Commuter Benefits
If your employer offers commuter benefits, it’s important to know how they impact your taxes. In this section, we’ll look at the tax implications of different types of commuter benefits.
- Pre-Tax Deductions: If you use pre-tax dollars to pay for your commute, the amount you contribute is deducted from your taxable income. This means you’ll pay less in federal income tax, Social Security tax, and Medicare tax. Your employer will also save money on payroll taxes. However, you cannot claim a tax deduction for commuting expenses that are paid for with pre-tax dollars.
- Taxable Income: If your employer provides you with commuter benefits such as transit passes or parking subsidies as a part of your compensation package, these benefits are considered taxable income. This means they will be subject to federal income, Social Security, and Medicare taxes. However, you can claim a tax deduction for commuting expenses that are not covered by your employer.
- Tax Exclusion Limitations: The IRS places limits on the amount of pre-tax dollars and tax-free fringe benefits that can be used for employee commuting expenses. For example, the maximum amount of pre-tax dollars you can contribute to a transit or parking account in 2021 is $270 per month. Exceeding these limits can result in tax penalties.
It’s also important to note that commuter benefits, whether pre-tax or taxable, are generally not subject to state and local income taxes. However, each state has its own regulations, so it’s important to check with your state’s tax agency to confirm how commuter benefits will be taxed.
To help you understand how commuter benefits impact your taxes, here is an example table:
| Pre-Tax Deduction | Taxable Income | |
|---|---|---|
| Monthly Transit Pass Cost | $100 | $100 |
| Monthly Contribution | $100 pre-tax | N/A |
| Tax Savings (for someone in the 22% tax bracket) | $22 | N/A |
| Monthly Taxable Income Increase | N/A | $100 |
| Tax Increase (from $100/month taxable income increase) | N/A | $22 |
| Net Monthly Benefit | $78 | $78 |
In this example, using pre-tax dollars saves the employee $22 per month in federal taxes, but the taxable income increase results in an additional $22 per month in taxes. This demonstrates the importance of understanding the tax implications of commuter benefits and carefully considering which option is best for your situation.
FAQs: Are Commuter Benefits Use It or Lose It?
1. What are commuter benefits?
Commuter benefits are pre-tax deductions from your salary that can be used to pay for eligible commuting expenses like public transportation and parking. This allows you to save money on your commute.
2. What does “use it or lose it” mean?
“Use it or lose it” means that if you don’t use all of your commuter benefits by the end of the year, you will lose any unused funds. They do not roll over into the next year.
3. When do commuter benefits expire?
Commuter benefits typically expire on December 31st of each year. Any unused funds will be lost at that time.
4. What counts as an eligible expense?
Eligible expenses include public transit, parking at or near public transit, and vanpooling. Biking and walking costs are not usually eligible expenses.
5. Can I change the amount of my commuter benefits?
Yes, you can change the amount of your pre-tax deductions at any time. However, any changes must be made before the end of the calendar year.
6. What happens if I don’t use all of my commuter benefits?
If you don’t use all of your commuter benefits by the end of the year, any unused funds will be lost. You will not receive a refund or credit for the remaining balance.
7. Can I use my commuter benefits for personal trips?
No, commuter benefits can only be used for eligible commuting expenses related to work. Personal trips are not eligible expenses.
Closing: Thanks for Reading!
We hope these FAQs have been helpful in understanding how “use it or lose it” applies to commuter benefits. Remember, if you have any questions about your specific plan, be sure to contact your employer or benefits provider directly. Thanks for reading and come back soon for more helpful tips!