A commuter benefit is simple until the monthly limit meets a hybrid schedule.
Pre-tax transit and parking accounts are among the easiest benefits to offer and among the easiest to run slightly wrong. We set them up so the monthly limits, eligible expenses and payroll treatment stay correct, and we run them through our platform so employees see one account alongside the rest of their benefits.
Two monthly limits, applied month by month, not year by year.
For 2026 the IRS monthly exclusion is $340 for qualified parking and $340 for transit passes and commuter highway vehicle transportation. The limits are separate, so an employee who drives to a train and parks can use both.
Monthly, Not Annual
The exclusion applies to each month’s commuting cost. An expensive month cannot borrow against a cheap one, which is why employees with irregular commuting need elections set to their typical month rather than their average year. Monthly limits shape commuter benefit elections.
What Qualifies
Transit passes, vanpools and parking at or near work or at a location from which the employee commutes by transit. Rideshare trips, tolls and mileage generally do not qualify, so the eligible expense list is where most employee confusion starts.
What Is Gone
Federal law permanently eliminated the tax-free bicycle commuting reimbursement for tax years beginning after 2025. Plans that still describe it need updating, so employees are not promised a benefit that no longer exists. Updating plan documents keeps commuter benefits accurate for 2026 and beyond.
The errors are small each month and add up quietly across the year.
Commuter benefits rarely fail in a way anyone notices. They fail through payroll codes, stale elections and balances nobody is watching.
Hybrid Schedules
An employee who commutes two days a week may not need a monthly pass anymore. Elections set for a five-day commute build balances they cannot use, so we prompt a review whenever work location policy changes. Hybrid schedules call for regular commuter election reviews.
Balances at Termination
Unused pre-tax amounts cannot be refunded to the employee in cash. What happens to a balance when someone leaves is a plan design choice that should be written down before the first departure, not decided at it. A written termination policy keeps commuter benefits consistent.
Payroll Coding
Commuter deductions must be excluded from income tax and employment taxes up to the limit, and anything above it must be treated as taxable wages. A payroll code set up wrong once is wrong every pay period, so we check the first payroll after setup.
Paying for commuting and letting employees pay pre-tax are different choices.
An employer can offer employee-paid pre-tax accounts, an employer subsidy or both. Each has a different cost and a different tax result for the business.
Employee-Paid Accounts
Employees set aside their own pay before tax. The employer’s cost is mostly administrative, which is why this is where most employers start. Employee-paid commuter accounts are an easy, low-cost starting point for a small or mid-size employer. Setup is light for HR.
Employer Subsidies
Paying part of the cost is a stronger recruiting message, especially in cities where parking is expensive. The business deduction for commuting benefits is restricted by federal law, so your CPA should confirm the after-tax cost before you commit. Employer commuter subsidies deserve tax review.
Local Requirements
Some cities require employers above a certain size to offer a commuter benefit. We check the locations where you have employees, because the rule follows the worksite, not headquarters. Local ordinances can require commuter benefits. We check every city where you have employees.
What employers ask before adding a commuter benefit.
Can employees change elections mid-year?
Yes. Unlike a health FSA, commuter elections can generally change month to month, which makes the benefit forgiving when schedules change. Monthly flexibility makes commuter benefits easy for employees to use, even as schedules and routes change. Changes apply going forward.
Do unused funds disappear?
Not month to month. Unused pre-tax amounts can generally carry forward in the account while the employee participates, but they cannot be cashed out. Carryforward rules make commuter benefits low-risk for employees, as long as they stay in the program.
Is it worth offering to a small team?
If employees pay meaningful transit or parking costs, yes. The pre-tax savings are real for them and the setup is light for you. Commuter benefits can suit small teams well, especially in cities where parking or transit costs are high.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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