Our beloved elected representatives in Washington established some nice tax breaks for transportation-related employee fringe benefits. They are intended to encourage you to give up your evil, gas-guzzling, pollution-spewing vehicle when commuting to work. If your employer still offers these tax-favored fringes, you should probably take advantage by signing up. But after an unfavorable change included in the Tax Cuts and Jobs Act (TCJA), your company may have pulled the plug on these goodies.
Your company may still provide moving allowances to cover job-related relocation expenses. But the TCJA eliminates tax-free treatment for these allowances.
Here are the details on how the new tax law treats these fringe benefits. Unlike most of the TCJA changes affecting individuals, it’s not good news.
Transportation benefits: Still favorable tax treatment for you, but no more deductions for your employer
The transportation fringe benefits I’m about to explain are still treated as tax-free goodies, within limits. That means if your employer provides them, their value — within those limits — is not included in your taxable salary. So you won’t owe any federal income tax, state income tax (if applicable), Social Security tax, or Medicare tax on the value. The TCJA did not change any of that. So if your company still pays for these benefits, they are still tax-free to you, within the limits explained below. So far, so good.
What the TCJA did do is permanently eliminate employer deductions for the cost of these benefits for 2018 and beyond. So it would not be surprising if your company is now unwilling to pay for these fringes because it can no longer deduct the cost. That’s Business 101. However, you may still be able to do something that delivers some tax savings to you. So please keep reading.
Mass transit passes
For 2018, employer-provided mass transit passes for train, subway, and bus systems are tax-free up to a monthly limit of $260. If your company still pays for this benefit, good for you. Sign up for it.
If your company no longer pays for this benefit because it can no longer deduct the cost, it may offer a salary-reduction arrangement that allows you to put aside up to $260 per month from your 2018 salary to pay for transit passes with your own money. That way, you pay for the passes with before-tax dollars. For example, say you set aside the maximum $260 per month to pay for train passes. If you’re in the 24% federal income tax bracket, you could save $987 a year in federal income, Social Security, and Medicare taxes. You might reap some state income tax savings too.
Here’s the rub. Thanks to the TCJA, your company can no longer deduct the salary that you set aside. Even so, your company may continue to offer a salary-reduction arrangement because you are covering the cost with your own money. Your company only...