Maximizing Employee Transportation Fringe Benefits: Save on Commuting Costs and Taxes

Employee transportation fringe benefits can be a great way to save on commuting costs while reducing your taxable income. If your employer offers these tax-advantaged benefits, taking advantage of them can put more money in your pocket. Here’s a breakdown of how employee transportation fringe benefits work in 2025.

What Are Employee Transportation Fringe Benefits?

Employee transportation fringe benefits are tax-free perks that help cover commuting costs, such as mass transit passes, parking allowances, and van pooling. These benefits allow employees to save money on transportation expenses while reducing their taxable income.

Mass Transit Passes: Tax-Free Commuting Perks

For 2025, employer-provided mass transit passes— including train, subway, and bus fare—are tax-free for employees up to a monthly limit of $325. However, due to a provision in the 2017 Tax Cuts and Jobs Act (TCJA), employers cannot deduct the cost of providing this benefit.

Alternatively, your company may offer a salary-reduction arrangement that allows you to set aside up to $325 per month from your salary to purchase transit passes with pre-tax dollars.

Example:
If you set aside the full $325 per month and fall into the 24% federal tax bracket, you could save up to $993 per year in federal income and Medicare taxes. If Social Security tax applies, your savings could increase to $1,235 annually.

Parking Allowances: Reduce Commuting Expenses

In addition to mass transit benefits, employer-provided parking allowances are also tax-free up to $325 per month in 2025.

You can combine benefits, meaning you could receive:

• $325 per month for transit passes

• $325 per month for parking near your workplace or at a park-and-ride station

This allows for significant savings, whether you take public transportation or drive to work.

Van Pooling: A Smart Commuter Option

For 2025, employees can receive up to $325 per month in tax-free benefits if they use a commuter highway vehicle (van pool) to travel between their residence and workplace.

A van pool qualifies if:

1. It seats at least six adults (excluding the driver).

2. At least 80% of its mileage is for transporting employees between home and work.

3. During each trip, at least 50% of its adult seating capacity is filled (excluding the driver).

While employers cannot deduct the cost of this benefit, they can offer a salary-reduction arrangement, allowing employees to pay for van pooling with pre-tax dollars, lowering taxable income and saving on taxes.

Job-Related Moving Expenses: Limited Tax Benefits

Through 2025, the TCJA has eliminated tax-free treatment for employer-paid relocation expenses, except for active-duty military members moving due to a permanent change of station.

If your employer still offers relocation assistance, they can deduct the expense, but you will need to report it as taxable income. While this means you pay taxes on the benefit, it is still better than receiving no financial support for moving costs.

Why You Should Take Advantage of Employee Transportation Fringe Benefits

Commuting can be stressful and expensive, but these benefits offer a way to cut costs and reduce taxable income. If your employer provides these perks, consider enrolling to:

• Save money on commuting expenses

• Lower your taxable income

• Make your daily travel less stressful

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If you have questions about employee transportation fringe benefits or need more information, contact us to learn how these perks can help you maximize your tax savings.