What is the annual limit for pre-tax commuter benefits and how is it determined?
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For 2025, the annual limit for pre-tax commuter benefits—specifically, qualified transportation fringe benefits—such as commuter highway vehicle transportation, transit passes, and qualified parking, is $325 per month for each benefit. This means an employee can exclude from income up to $325 per month for transit (including commuter highway vehicle transportation and transit passes) and up to $325 per month for qualified parking, for a total potential exclusion of $650 per month if both benefits are provided and used. Over a full year, this equates to a maximum annual exclusion of $3,900 for each benefit, or $7,800 if both are used to the maximum each month.
1. How the Limit Is Determined:
- The limits are set by Internal Revenue Code §132(f)(2), which specifies monthly maximums for each type of qualified transportation fringe benefit.
- The statute provides for annual inflation adjustments. Each year, the IRS publishes the updated limits in a Revenue Procedure, based on the cost-of-living adjustment formula in IRC §132(f)(6), which references the cost-of-living adjustment under IRC §1(f)(3).
- For 2025, the IRS set the monthly limit at $325 for both transit/commuter highway vehicle benefits and for qualified parking, as published in Rev. Proc. 2024-40.
2. Key Points:
- The exclusion applies per employee, per month, for each benefit.
- Any amount provided above the monthly limit must be included in the employee’s taxable wages.
- The benefit can be provided directly by the employer, through a bona fide reimbursement arrangement, or via a compensation reduction agreement (pre-tax payroll deduction).
- Cash reimbursements for transit passes are only excludable if a voucher or similar item is not readily available for direct distribution by the employer.
3. Summary Table for 2025:
These limits are subject to change each year based on inflation adjustments as prescribed by the Internal Revenue Code.
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