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I enrolled in pre-tax transit deductions because I understand that I save on taxes (by doing this).

What I don't understand is how post-tax savings works for transit and parking. For something like a IRA or 401k post tax savings ensures that you can withdraw the funds without taxation when you retire (at the required age).

I clearly am not receiving this benefit when I use post-tax transit savings to, say, ride the bus.

What is the benefit to the employee in this case? Why do companies offer it?

I googled for this however everything discusses pre-tax benefits.

If it matters, I'm in SF and this is a common company benefit.

  • Wow I have no idea. Are you sure its not pre-tax for transit and parking? I have never heard of post tax for that. You said its common practice so I assume you know what is going on. – Mark Monforti Apr 10 '15 at 2:44
  • @MarkMonforti yes it's post tax. I enrolled in pretax. (I'm a new grad so I'm not super familiar with this but I noticed a few companies offer it) – Tai Apr 10 '15 at 6:10
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I found this page from a transit deduction plan administrator saying:

In some cases, the monthly maximum may not be enough to cover your transit expenses. For your convenience, you may add post-tax dollars to your eflexTransit accounts.

I think that is the gist of the idea. There would be no point in a plan that was all post-tax. But if you already have some deductions pre-tax, you might want to add some post-tax money to the same account so that you can, e.g., purchase a monthly bus pass in a single transaction using money from a single account. This info, apparently from another plan provider says essentially the same thing.

  • Interesting... Essentially so you can buy something ex a pass that you might not otherwise be able to afford with just pre-tax money. Thanks! – Tai Apr 10 '15 at 6:10
  • I'll accept this answer if no one else has anything radically different. I'm giving it a little time in case there is something else (maybe). – Tai Apr 10 '15 at 6:12
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There is one way this could work, and it only does because of the unusual way Congress has modified some aspects of tax law on an annual basis.

A few years back the maximum amount that an employer could give you, or that you could contribute tax free was set a X per month for transit. In a way to spur commuting Congress raised it to X+Y, but did so temporarily. The next year it dropped back to X. Many people changed their monthly contribution back to X. In late December Congress retroactively said: Lets pretend the previous temporary increase was extended for a year. This meant that some post-tax contributions in the previous 12 months could be thought of as pre-tax contributions

Because I was a little slow on the ending of the temporary increase, for a month Y extra was withheld post-tax. So I was sent a check for the taxes that were over-withheld when congress retroactively extended the higher amount. I no longer use the transit benefit but I understand congress did it again in late 2014.

So contributing the amount you need to commute, even if part of it is post-tax, may allow you to tax advantage of congresses inability to set tax guidance in advance.

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