Section 132 of the tax code provides that employers may set up a flexible spending account benefit for employees to pay work-related transit and parking expenses with tax-free dollars. Tax savings on employee contributions to these FSAs come from income and FICA taxes for employees, with matching payroll tax savings for employers. All employers need to get started is a written plan document.
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In 2023, employees may set aside up to $300 monthly for eligible transportation costs necessary to get to work and a separate $300 monthly for eligible parking expenses paid so that the employee may be at work. Note that these amounts are contributed separately and held separately; transfers from parking to transportation or vice versa are not allowed.
Total tax savings depends on the amount an employee sets aside via pre-tax salary deductions and the employees tax bracket. For example:
| Income Tax Bracket | Income Tax Savings | FICA Tax Savings | Annual Tax Savings |
| 22% | $1,584.00 | $550.80 | $2,134.80 |
| 32% | $2,304.00 | $550.82 | $2,854.82 |
| 37% | $2,664.00 | $550.82 | $3,214.82 |
| Table assumes employee contributes the combined maximum monthly allowance of $600 ($300 parking and $300 transportation) for a yearly total of $7,200. FICA (Social Security and Medicare) tax rate is 7.65%. | |||
The Transit and Parking FSA is similar to those for medical expenses and dependent care.
Before the start of the plan year, employees elect to set aside a certain amount (via equal and periodic pre-tax salary deductions) to cover qualifying costs of commuting to work. As an employee incurs Section 132 commuting expenses throughout the plan year, a request form is submitted to the employer for reimbursement.
Unlike other FSAs, a Section 132 transit and parking FSA has no use-it-or-lose-it provision. If the employee does not use the full amount before the end of the program year, the left over amount is carried forward to the next year.
As a general rule, the Transit and Parking FSA fringe benefit can only be provided by employers to employees. Common law employees and officers of corporations are eligible; however, sole proprietors, partners, independent contractors, and two-percent shareholders of S corporations are not.
The law does not include non-discrimination requirements for the benefit.
Parking expenses that can be paid with pre-tax dollars in a Section 132 plan include the cost of:
Qualified amounts include costs of any pass, token, fare card, voucher, or other item that entitles the employee to use mass transit for the purpose of traveling to or from their place of work.
However, when a transit voucher program is readily available, Federal regulations prohibit the use of cash reimbursement as a way to provide transit benefits.
The mass transit can be a public system, or a private enterprise provided by a company/individual who is in the business of transporting people in a “commuter highway vehicle,”defined in part as:
Commuter highway vehicles may be owned or leased by an employer to be used by employees or a third-party provider for transportation purposes. Employees can also own and operate commuter highway vehicles.
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No annual fee — Core Documents does not require an annual renewal fee to maintain your plan document package. A plan document only needs to be updated when there are changes in the plan or in the law that make it necessary. We will notify you when there are sufficient changes in the Code to require amending and restating your Plan and ask that you keep us informed when there is a change to your plan. You can amend and update your plan document anytime, at a discounted fee and only when necessary, which is the most cost-effective way to maintain it.
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