More and more employers are providing some kind of commuting benefits for employees. From bicycle or electric scooter commuting to vanpooling to parking and transit passes, new possible employee benefits are appearing every day. Are these employee benefits deductible to you as an employer? And are they taxable to the employees?
Commuting Expenses are Typically Non-Deductible
Let's start with the basics: The cost of commuting back and forth between home and work is not deductible, whether you are an employee or the owner of a business.
What this article looks at are exceptions to this IRS restriction, for two purposes:
- To allow businesses to deduct the cost of reimbursing employees for these costs as an employee benefit
- To allow employers not to include these reimbursements as taxable income to employees. This is usually an exclusion from income tax withholding and FICA taxes, but also affects the employer's unemployment tax liability
No Deductions for Employer Commuting Expenses
The 2017 Tax Cuts and Jobs Act eliminated business tax deductions for employers that give mass transit and parking benefits to employees, beginning in 2018 and going forward. This means you can't deduct any expenses for commuting, described as payment or reimbursement for travel between your employee's home and your work location unless these payments are "necessary for ensuring the safety of your employee."
There is one exception, for bicycle commuting expenses. As of 2018 and through 2025, you may deduct qualified bicycle commuting reimbursements as a business expense, but the full amount of the reimbursement is taxable to the employee.
You can still give these benefits to employees, but you can't take a tax deduction for them as a business expense, and they will probably be taxable to the employee.
Commuting Benefits Taxable to Employees
This section deals with transportation (commuting) benefits for employees and if they are taxable to the employee. There are two kinds of benefits, de minimis (small amounts) and qualified.
De Minimis Transportation Benefits
De minimis benefits are small amounts given infrequently, for which accounting would be unreasonable or impractical. For example, if you give an employee cab fare one time to get home because they missed the last bus while working late at your request, that's de minimis.
What is De Minimis?
To be considered as de minimis, the payment must be (a) infrequent, not usual, and (b) for a small amount.
A benefit can't be de minimis if it's based on hours worked. Those payments are wages and they get into minimum wage and overtime issues.
If the payment or reimbursement is de minimis, you don't have to include it in the employee's taxable wages.
You don't have to include de minimis benefits for public transit passes, tokens, or fare cards for public transit systems, up to $21 a month, in an employee's wages. You can also give employees a voucher or reimburse them, up to the same $21 a month. If you reimburse employees, you must have a way to verify that they are using public transportation for commuting.
Qualified Transportation Benefits
You can provide certain qualified transportation benefits to employees without including them in the employee's taxable wages or salary, up to specific limits (described below). These transportation are included:
- A ride in a commuter highway vehicle between the employee's home and work
- A transit pass
- Qualified parking
A commuter highway vehicle seats at least six adults (not counting the driver). At least 80% of the mileage must be for transporting employees between home and work and at least half of the seats (not counting the driver) must be for employees.
A transit pass is a pass, token, fare card, voucher, or something similar that entitles someone to ride free or at a reduced rate on mass transit or a vehicle for hire with seats for six adults (not counting the driver).
Qualified parking is parking your business reserves for employees near your office or near mass transit, commuter highway vehicles, or carpools. It doesn't include parking at or near an employee's home.
Monthly Limits on Transportation Benefits
You can only give employees a limited amount to be excluded from their taxable wages or salary:
- $270 a month for combined commuter highway vehicle transportation and transit passes
- $270 a month for qualified parking
If you give employees more than these amounts, you must include the excess in their taxable pay.
Reimbursement Verification Required
What makes these benefits "qualified," meaning not taxable to employees, is the existence of a reimbursement arrangement. To be able to exclude these benefits from employee wages, you must have a specific reimbursement plan in place. The plan must require employees to verify the expenses before you reimburse them. You may also give employees vouchers if they follow detailed protocols for verifying how the voucher was used.
No Transportation Benefits for Business Owners
These benefits apply to your employees and any leased employees you hire for more than a year.
Self-employed individuals can't be considered employees for qualified transportation benefit purposes.
These benefits also don't apply to S corporation employees who are 2% shareholders. You can't consider them an employee of the corporation for this purpose. Treat them as you would a partner in a partnership; that is, as a business owner.
For more information on these commuting and transportation benefits, see IRS Publication 15-B - Employer's Tax Guide to Fringe Benefits. Since these benefits can be complicated, if you are considering offering them to employees, be sure you check with a tax professional or your benefits advisor first.