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I've lived in the US since 2013. I used to be a student in Massachusetts till last July, when I joined a company full-time in California.

I read (mirror) that:

the tax code allows tax-free transportation fringe benefits of up to $255 per month per employee for transit expenses and up to $255 per month for qualified parking.

Wikipedia also has a page on this: Employer transportation benefits in the United States.

Since I joined the company on July 24, can I deduct 12*255=3060 USD for qualified transit expenses this year, or do I have to prorate (in my case ~5*255=1275 USD, where 5 corresponds to the rounded number of month between July 24 and December 31)?

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    The answers below are good but I want to point out that it is really important that you refer to your own employer plan information as the actual administration can vary significantly from one employer to another. Many employers won't allow election changes but will allow you to enroll or cancel your enrollment on an as needed basis through the year, some will allow monthly election changes up to some date. This is all very employer specific. – quid Oct 5 '17 at 23:25
  • @quid Thanks, that's good to know. My firm allows to change it monthly. – Franck Dernoncourt Oct 5 '17 at 23:31
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Transit FSAs have $255 limits for each of {parking, public transit} per month, considered on a monthly basis separately; and that limit applies both to funding and to claims.

You may fund your transit FSA with up to $255 per month for each purpose. You may withdraw up to $255 per month for each purpose. The amounts each month don't have to match, but they do need to each be under the maximum.

Any amount you spend over $255 for either parking or public transit would need to be funded with post-tax money. Most transit FSAs have a mechanism for adding a credit card to the account to allow this to be seamless and on-demand (as opposed to be declared in advance).

You can change your deduction each month, up to the limit your benefits provider permits (for me for example, I can choose up to the 10th of the prior month what to do).

This differs from health care FSAs, which are annual in nature, and must be entirely defined during open enrollment - but as they have annual limits, would allow you to use the full amount even when employed for only half the year.

  • "You may withdraw up to $255 per month for each purpose." I have not heard of such a restriction. How does this work? I believe I have had cases where I bought my $173 monthly pass on the first working day of a calendar month, and 25 days later, I happen to be organized enough to buy the next one on one of the last days of the same calendar month. Should my commuter benefit card have prevented it for a few more days? – user662852 Oct 5 '17 at 20:57
  • @user662852 Some will, yes; for example, this provider would. I think what you describe is within the intent - you're using that second pass the next month, not the same month you paid for it. – Joe Oct 5 '17 at 21:02
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No, you can't deduct any of that.

What they're talking about is a flexible spending plan, otherwise known as "Use it or lose it" money. You choose to put pre-tax dollars into a restricted fund. This money is not taxed, in fact technically, it's not even income. You can only spend out of that fund to buy parking, tolls, transit tickets, things like that.

Any money not used for those purposes in a suitable time period evaporates. Gone, and irrecoverable. You can't even take the loss as a tax deduction!

You have to set this account up with your employer.

You can't just dig up your old transit and parking receipts and stick those on your Schedule A.

Take 3 people.

  • Reliable Ron spends $100/month on transit tickets. He sets up a fund with his employer and has $100 deducted pre-tax, and has that automatically fund his monthly transit card. Good deal.
  • Flaky Fran does exactly the same thing. Except she does "casual carpool" 85% of the time, getting free rides from people who want to use the carpool lane. She only spends $15 a month on transit. The other $85 is annihilated (eventually, after the reasonable time expires, keep in mind she has another $100 coming next month, so it's snowballing). She spent $100 of pretax income to get $15 of transit.

As you can see, Fran is shooting herself in the foot. This is where these plans can go wrong.

  • Thanks for the clarification and pointing out that commuter benefits are not tax deductions. If Reliable Ron joined the company in the end of July 2017, can he sets up a fund with his employer and get 12*255=3060 USD in 2017? Or can Reliable Ron get at best ~5*255=1275 USD in 2017, (where 5 corresponds to the rounded number of month between July 24 and December 31; and 255 USD is the maximum monthly commuter benefits)? – Franck Dernoncourt Oct 5 '17 at 0:52
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    @FranckDernoncourt Almost certainly, 5 months. The IRS would have every right to raise a red flag if one employee's per-month commute expense is twice that of others. In any case it's the company's pleasure (and responsibility) to offer it. – Harper Oct 5 '17 at 1:22
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    "You can't even take the loss as a tax deduction!" You've already taken it as a tax deduction by putting it in the fund. If you put $100 in the fund, the moment you do that you've decreased your taxable income by $100. Your taxes are not affected by how much of that $100 you spend. – Acccumulation Oct 5 '17 at 19:19
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    I think this is not entirely accurate, still. The $85 is not annihilated; Fran can use it in another month (as long as she is still employed by that employer). It is only annihilated if she doesn't spend it ever. She's welcome to not fund the account the next month and spend another $15 of the $85. – Joe Oct 5 '17 at 19:23
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    @quid sounds like Carla doesn't belong in this answer. – Harper Oct 6 '17 at 1:20
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You are going to have to talk to your benefits office to understand all the deadlines and rules for their program. While the IRS does enforce the law, there are enough local variations in the rules to make it quite complex.

The first thing you need to know is the source of the funds: the employer or the employee.

Then you need to know the deadline for applying for the program, how you specify the monthly expenses in advance, and when the funds expire.

The way you pay for commuting and parking makes a difference: per-ride on the subway, van pool, monthly transit pass; daily parking at a lot, monthly hang tag, or at meter; These options determine how to expend the funds and how they give you the funds.

You can't get money for missed months. So you need to know what you have to do in October to get money for November.

  • Thanks, that's good to know. At that point, my main question is whether I may ask for more than 255 USD (maximum monthly commuter tax benefits for the year 2017) in a given month to compensate for not using any commuter tax benefits for the first 7 months of the year. I do have the answers for all the other questions you point out in your answer. (and I wish I had been aware that there could be a monthly deadline for applying for the program when asked first joined the firm! so that's some very useful points you mentioned.) – Franck Dernoncourt Oct 5 '17 at 23:34

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