Yes, commuters can still save money under the new tax law

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 loses the right to deduct that cost.

Parking

For 2018, employer-provided parking allowances are also tax-free up to a monthly limit of $260. You can be given this fringe on top of the tax-free $260 a month for transit passes. For example, you could get $260 per month to pay for the train plus another $260 to pay for the park and ride at the station. Or you can simply drive to work and get $260 in tax-free bucks to help cover parking near the office.

Once again, 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 parking with your own money. That way, you pay with before-tax dollars. Say you set aside $260 per month for train passes and another $260 for the park and ride. If you’re in the 24% federal income tax bracket, you could save $1,974 a year in federal taxes. Not bad for turning in a form to the company.

Once again, your company can no longer deduct the salary that you set aside, thanks to the TCJA. 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 loses the right to deduct that cost.

Job-related moving expense reimbursements no longer tax-free

Before the TCJA, your employer could cover qualified job-related moving expenses by reimbursing you or by paying the expenses directly to the third party in question. Either way, the benefit was federal-income-tax-free to you. Sadly, the TCJA eliminates tax-free treatment for 2018-2025, unless you’re an active duty member of the Armed Forces and are moving due to a permanent change of station.

The good news: your company may still provide this benefit because it can still deduct the cost. If so, you come out ahead even though whatever the company pays is now treated as additional taxable salary. And your company might even be willing to “gross up” what it pays to cover the additional taxes you’ll owe. Fingers crossed!

One more thing: If you pay job-related moving expenses yourself, no deductions are available for 2018-2025, unless you are an active duty member of the Armed Forces and are moving due to a permanent change of station.

The bottom line

If your company still pays for transportation fringes, take advantage. If not, I hope you can sign up for a salary-reduction deal that cuts your taxes. The higher your tax bracket, the more you can save. If neither option is available, I feel your pain. I also rue the loss of tax-favored treatment for job-related moving expenses. The new tax law giveth and it taketh away.

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