Easy, Automated Transit & Parking Benefits

The transit employee benefit, also known as a pre-tax transit benefit, allows employees to use pre-tax income to pay for eligible public transportation and commuter expenses. This includes transit passes for bus, subway, commuter rail, ferry and qualified vanpool programs. Employees can reduce their taxable income while covering work-related transportation costs, leading to potential tax savings on both federal income tax and payroll tax.

For employers, offering a commuter benefits program under IRS Section 132(f) can lower payroll taxes and support employee retention. Benefits are limited to a monthly cap set by the IRS and must be used for eligible transit expenses—not rideshare services like Uber or Lyft used for personal travel. isolved simplifies the administration of these benefits with integrated payroll, a commuter debit card and app-based reimbursements that align with compliance and reporting requirements.

A qualified transportation benefit allows employees to pay for eligible commuter expenses—such as monthly parking and public transportation—on a pre-tax basis, as outlined in the Internal Revenue Code Section 132(f). These benefits cover costs related to employee commutes, including parking at or near the workplace, transit passes for buses, trains and eligible vanpools, but exclude after-tax expenses like tolls, fuel or non-work-related carpool arrangements.

By reducing taxable income, qualified transportation benefits provide tax savings for both employers and employees. Employers may also lower FICA costs, while employees see an increase in take-home pay. These tax-free benefits must be administered under IRS rules and within monthly limits, often supported by a third-party administrator for compliance and reporting across locations like New York City or multi-state operations.

Commuting expenses for employees include the costs incurred to travel between their home and workplace. Eligible expenses under a commuter benefits program include transit passes for public transportation such as buses, subways, ferries, commuter rail and qualified vanpools. Parking expenses at or near the worksite—or at a park-and-ride location—also qualify if they meet IRS guidelines.

When offered on a pre-tax basis, these commuting expenses become a tax-free fringe benefit that reduces taxable income and lowers federal tax and payroll tax liability. Employees can use a commuter debit card or payroll deductions to cover qualified transit and parking costs up to IRS monthly limits. These programs are typically managed by a third-party administrator to support compliance and offer tax benefits that improve retention and increase employee take-home pay.

Qualified transportation fringe benefits refer to employer-provided benefits that cover certain commuting costs without increasing an employee’s taxable income. These include expenses for mass transit (bus, rail, ferry), transit passes, qualified parking near the worksite and rides in a commuter highway vehicle like a vanpool. The IRS outlines these benefits in Section 132(f), allowing them to be excluded from income if administered within monthly limits.

These benefits can be offered as a direct employer-paid subsidy or funded through employee payroll deductions on a pre-tax basis. When managed correctly—often by a third-party administrator—they reduce both federal income tax and payroll taxes. For HR teams, offering a commuter benefits program helps meet employee expectations, especially in high-commute areas like New York City and contributes to better retention without increasing base compensation.