Marginal Tax Bracket
Select the appropriate marginal tax rate matches your income. For example if on your taxes you report $100k in adjusted gross income (AGI) as a single filer, pick the 24% option, because you make at least $84k but less than $160k.
Monthly Commuter Contribution ($265 max/month)
How does this work?
The Pre-Tax commuter benefit works exempts up to $265 per month from Federal income, Social Security, and Medicare taxes. This money can only be spent on eligible travel to work expenses such as public transit passes (commuter trains/buses/vanpool), parking at your employer, or ride-share (Uber Pool/Lyft Line). In general, your employer will partner with another company who will provide the passes and payment cards.
So imagine that if you earn $70,000 a year in Texas, and pay $200 per month in eligible parking fees at your workplace:
Before Pre-Tax Benefit
- Monthly Income: $5,833
- Taxable Income: $5,833
- Total Federal Taxes: $1,238
- Parking Pass Using Your Credit Card : $200
- Amount left over : $4,395
After Pre-Tax Benefit
- Monthly Income: $ 5,833
- Parking Pass Using Pre-Tax Commuter Benefit: $200
- Taxable Income: $5,633
- Total Federal Taxes: $ 1,194
- Amount left over : $4,439
Savings of $44 / month or $528 / year!
Sure this isn’t a ton of money. But if you’re already auto-paying for public transit passes, ride share (Uber, Lyft), or parking every month to get to work, this is a quick an easy way to save some money with minimal effort. The only downside is that you employer must have an account set up with a benefits provider to allow you to take the deduction.
This calculator is for illustration only, and the tax brackets and contribution limits will likely shift in coming years. Some states will also deduct Pre-Tax Commuter benefits from their state and local taxes so your savings could be even bigger! If your income is right at the border of the break point of one of the marginal tax brackets, your actual savings will vary a little bit. Just something to keep in mind. For more information, the IRS has a very long PDF with all the details
One weird thing about the benefit is that your employer may or may not list the benefit in Box 14 of your W2. So I’m not sure how the government tracks how compliant you are with you spending or contributions or if there’s a difference if you have multiple jobs. It seems like there’s a lot of trust in the companies that administer the benefit to do it correctly.