The average American who commutes to work, spends approximately 19% of their annual income on commuting expenses. That’s a hefty chunk, especially considering the fact that 8 in 10 U.S. adults are experiencing financial stress and they’re not receiving anything for that expense. It’s simply a necessary cost just to be able to work.

Commuter benefits are a way employers can help reduce the cost-burden of their employees’ commutes. There are two types of commuter benefits: pre-tax and post-tax. In this post, we’ll cover how the two types of commuter benefits work as well as the current IRS monthly limits for these accounts.  

What are commuter benefits?

Commuter benefits are employer-offered accounts through which employees can reimburse for transportation-related expenses that allow them to get to work. There are two types of commuter benefits: pre-tax commuter benefits and post-tax commuter benefits.

Pre-tax commuter benefits are employee-funded, and at times employer-funded, accounts into which employees contribute money on a monthly basis. The employee doesn’t pay taxes on the money they contribute to their pre-tax commuter benefit account, leading them to save on their income taxes.

Post-tax commuter benefits are employer-funded accounts through which employees can reimburse for different transportation expenses than they can through the pre-tax account. Employees will pay income taxes on the expenses they reimburse through a post-tax commuter benefit account.

How do they work?

Employers can offer their employees the opportunity to sign up for pre-tax and post-tax commuter benefits during open enrollment. Employees that choose to participate in the pre-tax benefit account will also decide how much they will contribute to their commuter benefit account each month, up to the IRS monthly limit. Employers will then take the appropriate amount from each paycheck before income taxes are assessed and deposit it into the employee’s account. 

Employees can pay at point of purchase for public transit or approved parking with a benefits debit card or pay out of pocket and submit the required documentation for reimbursement with a pre-tax commuter account. Any unused contributions typically roll over from month-to-month. Once the employee leaves the company for any reason, they usually have a designated period of time, determined by the employer, within which to reimburse themselves for any outstanding expenses. 

Employees who choose to participate in the post-tax commuter benefit account, will receive a specified allocation either all at once to be used within the year or deposited each month in their accounts, depending on employer preference. Since these accounts are employer-funded, employers have more flexibility in terms of the types of expenses for which they will reimburse, the amount they will allocate to each employee’s account, when they choose to allocate the funds, and more. 

Once an employee incurs an eligible expense, they can submit the required documentation to receive reimbursement through the account. Eligible expenses for post-tax commuter accounts and pre-tax commuter accounts typically do not overlap and instead compliment each other to provide ultimate flexibility to employees for how they get to work. Employees will pay income taxes on the amounts for which they reimburse. 

What are the IRS annual limits for commuter benefits?

The IRS only enforces monthly contribution limits on pre-tax commuter benefit accounts. Those limits are:

• 2024: $315 per month.

• 2025: $325 per month.

What do commuter benefits cover?

Pre-tax commuter benefit accounts can either reimburse for mass transit commuting costs or qualified parking costs (they usually don’t reimburse for both through the same account). Eligible mass transit costs include fares for: 

• Bus 

• Subway 

• Train

• Ferry

• Vanpool

Eligible parking expenses include: 

• Parking on the office premises, a place an employee is conducting business, or nearby.

• Parking at a mass transit center the employee uses to commute to work.

• Parking at other locations that enable the employee to commute to work like meetup points for: commuter highway vehicles, carpools, or other points of privately hired transportation. 

Post-tax commuter benefit accounts can be used to reimburse for expenses that are ineligible under a pre-tax benefit. Eligible expenses are determined by the employer and can include:

• Bike repair costs.

• Gas between employee’s home and the office.

• Rental scooters or bike share.

• Meal reimbursement.

• Taxis and rideshare services to the office.

• Bike share services.

• Dry cleaning fees.

• Bridge tolls.

Why offer commuter benefits?

Nine out of ten companies have reported that they’ve at least started the process of bringing employees back into the office. This is juxtaposed against employee feedback that says they’d rather work from home at least some of the time. In fact, 41% of employees surveyed want to work remotely at least some of the time. By providing commuter benefits, employers can take the sting out of returning to the office.

In addition to this incentive, helping employees shoulder the financial burden of commuting and other costs, employers can help to ease the financial stress that is prevalent amongst U.S. workers. This financial stress is leading to lost productivity, weakened company culture and delayed retirements, and costing the American businesses $300 billion a year. There are many benefits that employers can offer their employees to support their financial health, but employers that want to also incentivize a return to the office, can accomplish both with a commuter benefit.

Provide more support for employees with post-tax commuter benefits

In order to maximize their support of employees’ commuting costs, employers should consider offering a post-tax commuter benefit account alongside their pre-tax transportation benefit. Lively has a Return to Office Lifestyle Spending Account (LSA) that can provide the perfect complement to a pre-tax account. 

The purpose of this LSA is for employers to support employees in all of the added costs that come along with returning to the office. It’s not just the expenses for actually traveling to the office that will be higher, employees might incur additional dry cleaning fees because of office dress codes, they might have to eat meals from restaurants instead of at home, they might incur extra maintenance on their bike if they choose to bike to work, and more. Per IRS rules, these costs can’t be reimbursed for under a pre-tax account. But employers can support these costs, while incentivizing employees to come back to the office, by providing an LSA that does reimburse them.

An LSA is an employer-funded account through which employees can reimburse for employer-approved expenses. Employees pay income taxes on the amounts for which they reimburse through this benefit.

Get started with Lively!

If you’re ready to uplevel your benefits package, while easing the administrative burden on your HR Department, reach out to Lively today. Our commuter benefits offer hard-to-find flexibility and modern features, including mobile payments, tap-to-pay options, and the ability to reallocate unused funds between transit and parking. 

Lively is your partner in achieving your business and culture goals. We offer a wide range of flexible employee benefits that can be bundled for more economical and efficient benefits administration and take care of the employee onboarding and support so your team can focus on other things. Get started with Lively today!