Understanding Commuter Benefits Accounts
What They Are & Why They Matter
Companies across the U.S. are increasingly embracing commuter benefits as part of their total rewards packages. These programs help employees reduce commuting costs such as transit passes, vanpooling, and parking expenses using pre-tax dollars or employer-provided subsidies. In many cases, commuter benefits yield savings for both employees and employers (e.g. reduced taxable income, lower payroll taxes).
In today’s competitive labor market, offering commuter benefits can also be a meaningful differentiator to attract and retain top talent.
How Commuter Benefits Work
1. Qualified Transportation Fringe Benefits (IRC § 132(f))
Under Internal Revenue Code § 132(f), employers can allow employees to use pre-tax dollars to pay for certain commuting expenses. These “qualified transportation fringe benefits” include:
- Transit passes (bus, subway, rail)
- Vanpool or commuter highway vehicle rides
- Qualified parking (parking expenses near the workplace or a park-and-ride)
The benefit is that the amounts elected are excluded from an employee’s taxable income, reducing federal (and often state/local) payroll tax burden.
For 2025, the IRS has set the monthly exclusion limit at $325 for transit / commuter vehicles and $325 for qualified parking.
2. Employer-Paid or Subsidized Benefits
Rather than—or in addition to—employee pre-tax elections, employers may:
- Directly subsidize transit passes or vanpool fees
- Provide employer-paid parking reimbursements
- Offer shuttles, employer-provided rides, or alternative commuting support
These options may or may not be taxable, depending on how they’re structured and local rules.
3. Non-Monetary Alternatives
Not all commuter benefits have to be financial. Some alternatives include:
- Telework or hybrid schedules to reduce commute days
- Encouraging carpooling, biking, or walking (sometimes with perks)
- Flexible work hours to avoid peak travel times
These options can help businesses lower their environmental footprint and improve employee satisfaction.
Where Commuter Benefits Are Required
| Jurisdiction | Requirement / Covered Employers | What Must Be Offered |
| New Jersey (statewide) | Employers with 20+ full-time employees (excluding tax-exempt) | Pre-tax commuter benefits (transit / vanpool) |
| Philadelphia, PA | Employers with 50 or more covered employees | A mass transit program or pre-tax election or employer-provided passes |
| Washington, D.C. | Organizations with 20+ full-time employees | Must offer at least one commuter benefit program (pre-tax, subsidy, or employer-paid) |
| New York City, NY | Employers with 20+ full-time, non-union employees | Pre-tax commuter benefits for transit or vanpool |
| San Francisco / Bay Area, CA | Businesses with 50+ employees in the Bay Area | One of several commuter benefit options (pre-tax, subsidy, employer-provided transit, alternative benefit, or telework) |
| Los Angeles, CA | Covered employers in L.A. metropolitan area (50+ employees) | Pre-tax election program for transit / vanpool |
| Richmond, CA | Employers with 10+ employees working ≥ 10 hours/week | Must offer either pre-tax election, employer-paid benefit, or employer-provided transit |
| Seattle, WA | Employers with 20+ employees (excluding tax-exempt) | Pre-tax commuter benefits for transit |
| Chicago / Illinois (RTA area) | Employers with 50+ employees within the RTA transit district | Pre-tax commuter benefit (transit passes, vouchers, tokens) |
Note: The map of mandated locales is evolving. Always check local regulatory sources or legal counsel to confirm current obligations.
Why Offer Commuter Benefits?
– Commuting is an expensive ongoing costs employees face. By reducing that burden, you deepen employee loyalty.
– A survey found that 58% of workers believe employers should help with commuting costs, and among younger workers (ages 25–44), the sentiment is even stronger. ExtensisHR
– In hybrid or return-to-office models, commuter benefits soften the transition and act as a differentiator in tight labor markets.
Tax & Cost Savings
– Employers don’t pay payroll taxes on employee contributions to qualified commuter benefits (within the IRS limits).
– Employers benefit from reduced administrative burden when using a third-party administrator or PEO model that bundles benefits.
Corporate Responsibility & Sustainability
– Promoting mass transit, vanpooling, biking, and telework helps reduce traffic congestion and greenhouse gas emissions.
– Many local ordinances are tied to air-quality goals, making commuter benefits part of compliance and community impact strategies.
Best Practices for Implementing a Commuter Benefits Program
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