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I'm moving to NYC for a job and my new company offers a plan for Pre-tax commuter benefits. From what I've read the federal maximum for pre-tax dollars towards this is $245/month. I'm wondering how this amount is regulated and how it is given out to employees: Can I use it for anything? Do they give me a check? A debit card? A subway card directly? Can I use it to buy my girlfriend a subway ticket? Is it just something I can deduct at the end of the year, or is it taken out of my taxable income every pay check?

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Your situation may be different if your employer contracts with a different company to manage these benefits (or manages them themselves), but I'll give you my experience. My employer contracts with WageWorks. I log on to the WageWorks site, select commuter options from a predefined list, e.g. public transit passes, gas debit cards, parking passes, etc. and the cost of my choices is automatically deducted from my paycheck each month, up to the limit. WageWorks either sends me whatever I purchased in the mail or reloads the card automatically, and the process continues each month.

In my case, I couldn't use this to purchase a ticket for someone else, but I could choose the subway option for myself and let another person use it.

  • Thanks, my company actually uses WageWorks too. Does it reduce the income tax of state and city as well as federal? – David Jun 11 '13 at 15:42
  • @Dave It reduces your pre-tax income, which is the basis for all your income taxes. My city (Chicago) doesn't have city income taxes, and the pre-tax deduction doesn't affect sales taxes, property taxes, etc. – John Bensin Jun 11 '13 at 15:55
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Two companies I worked for in the DC area also did WageWorks. The commuting money could be used for the Subway, Bus, and commuter rail. A separate pot of money was used for parking.

We had to estimate the amount of money that would be used the next month. We had to decide by mid-June how much we would spend in July. The money was automatically added to the metro fare card on the first business day of the month. When I first started they put the money on a special debit/credit card that could only be used at commuter system. It would be rejected at the department store.

If parking couldn't be paid using a special card, there was a way to claim the money with or without receipts.

If the company, like the US Government does for their employees, paid the commuting expenses any excess funds at the end of the month were pulled back from the card. They were just starting to do this in 2012 for employee pre-tax funds. They were supposed to add it to your next paycheck any excess at the end of the month.

There was also a way to use post tax funds from your paycheck so that all your commuting expenses could be on one card. Of course any post-tax funds would be left on the card.

There was no real way for them to audit this because the system would never know if you were going to work or going to the dentist. I ended up using two cards, one for work and one for non-work usage.

  • +1 for details on how parking/gas works. I purchase a public transit card through WageWorks, so I don't know the specifics of how the other options work. – John Bensin Jun 11 '13 at 16:40

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