Can I deduct qualified transportation benefits?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
For tax year 2025, employers generally cannot deduct expenses for providing qualified transportation fringe (QTF) benefits to employees, with only limited exceptions. This rule is the result of changes made by the Tax Cuts and Jobs Act (TCJA) and is implemented in the Internal Revenue Code and Treasury Regulations.
1. General Disallowance of Deduction
Section 274(a)(4) of the Internal Revenue Code provides that no deduction is allowed for the expense of any qualified transportation fringe (QTF) provided to an employee. QTFs are defined in Section 132(f) and include:- Transportation in a commuter highway vehicle between the employee’s residence and place of employment,- Transit passes,- Qualified parking.
Section 274(l) further disallows deductions for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee in connection with travel between the employee’s residence and place of employment, except as necessary for ensuring the safety of the employee.
2. What Is a Qualified Transportation Fringe?
A QTF is any of the following provided by an employer to an employee:- Transportation in a commuter highway vehicle (e.g., vanpool),- Transit pass (e.g., bus, subway, or train pass),- Qualified parking (parking on or near the employer’s business premises or a location from which the employee commutes to work).
3. Exceptions to the Disallowance
There are three main exceptions under Section 274(e) and the regulations at §1.274-13(e):
a. Treated as Compensation (Section 274(e)(2))
If the value of the QTF provided to the employee exceeds the monthly exclusion limit (for 2025, $325 per month for transit/vanpool and $325 per month for parking), and the employer includes the excess in the employee’s taxable wages and withholds income tax, the employer may deduct the portion treated as compensation. The deduction is limited to the amount included in the employee’s income (the “dollar-for-dollar” rule).
Example:If you pay $350 per month for an employee’s parking, $325 is excludable from the employee’s income, but $25 is taxable. You may deduct the $25 included in the employee’s wages, but not the $325 that is excludable.
b. Made Available to the General Public (Section 274(e)(7))
If the QTF (e.g., parking) is made available to the general public (customers, clients, visitors, etc.) and the primary use of the parking facility is by the general public (more than 50% of use), then the related expenses are not subject to the deduction disallowance. If the primary use is not by the general public, only the portion allocable to public use is deductible.
c. Sold to Customers (Section 274(e)(8))
If the QTF is sold to customers (including employees, if they pay fair market value in a bona fide transaction), the related expenses are deductible. If the fair market value is zero (e.g., in a rural area where no one would pay to park), the employer may be able to deduct the expenses, but bears the burden of proof.
4. Special Rules and Methodologies
If you own or lease a parking facility, the regulations provide several methods to determine the nondeductible portion of your parking expenses, including:- The general rule (reasonable allocation based on actual use),- The qualified parking limit methodology (multiply the number of employee spaces by the monthly limit),- The primary use methodology (four-step process based on reserved spaces and primary use),- The cost per space methodology.
5. Commuting Expenses (Section 274(l))
No deduction is allowed for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee in connection with travel between the employee’s residence and place of employment, except as necessary for ensuring the safety of the employee (e.g., unsafe conditions as described in §1.61-21(k)(5)). The exceptions in Section 274(e) do not apply to this rule.
6. Summary Table (for 2025)
7. Tax-Exempt Employers
Tax-exempt employers are subject to unrelated business income tax (UBIT) on the amount of QTF expenses that would be nondeductible if they were a taxable employer.
In summary: You generally cannot deduct the cost of providing qualified transportation fringe benefits to employees, except for amounts included in employee compensation, amounts attributable to parking primarily used by the general public, or amounts sold to customers for fair market value.Special rules apply for allocating expenses if you own or lease a parking facility. Commuting expenses are not deductible unless necessary for employee safety.
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
