Key takeaways
- Commuter benefits let employees use pre-tax payroll dollars for eligible transit and parking expenses, helping them save on taxes associated with those commuting costs.
- The IRS raised the 2026 monthly tax-exclusion limit to $340 for both transit and parking, up from $325 in 2025.1
- Under plans that allow carryover, unused commuter benefit amounts can roll over to subsequent periods rather than being subject to an annual use-it-or-lose-it deadline.
Return-to-office mandates have put commuting costs back on your employees' radar. In 2024, HealthEquity surveyed more than 600 full-time employees who had transitioned from fully remote work to a hybrid or fully in-office schedule. Among respondents, 54% cited commuting costs as an obstacle to coming into the office more often, followed by family and home obligations at 45%.
Employees concerned about commuting costs also reported average one-way commutes that were nearly 20% longer than those who described their return-to-office experience as extremely positive.
A commuter benefits program can help address one of the practical barriers employees face when returning to the office. By allowing employees to pay eligible expenses with pre-tax dollars, it can help reduce commuting costs while offering tax advantages for both employees and employers.
What are commuter benefits?
Commuter benefits let your employees use pre-tax dollars to pay for eligible transit and parking expenses tied to their daily commute.1
Pre-tax payroll contributions and IRS-set limits resemble a flexible spending account, but commuter benefits operate under a distinct section of the tax code (Section 132(f)) and follow their own rules, separate from a health or dependent care FSA.1
How do commuter benefits work?
With commuter benefits, employers allow employees to deduct a set amount from their paychecks before calculating taxes, then make that money available for eligible transit expenses.1
Depending on how your organization structures the program, employees may use their benefit in a few different ways:
- Traditional pre-tax spending account: Employees elect a monthly contribution, which accrues in their commuter account for spending or reimbursement.
- Pay-as-you-go: Employees place orders directly, and the corresponding amount is deducted from their next paycheck.
- Dedicated Commuter Card: Payroll deductions load automatically onto a reusable debit card that employees use at eligible transit and parking providers.
Which approach makes the most sense for your workforce? If your employees have predictable, recurring commute costs, such as a monthly transit pass, a traditional pre-tax account may be a good fit. If commute patterns vary week to week, such as for a hybrid schedule, a pay-as-you-go or card-based model can give employees more flexibility in managing their eligible expenses.
Commuter benefits offer employees real, tangible advantages:
- Convenience: Employees can pay transit providers directly, get passes mailed to their homes, or use a Commuter Card without submitting paperwork.
- Pre-tax savings: Because eligible contributions are made on a pre-tax basis, employees can reduce the taxes associated with qualifying transit and parking costs. Actual savings vary based on taxable income and tax status.
- Peace of mind: Employees can generally start, stop, or change commuter benefit elections without waiting for annual open enrollment, subject to applicable plan and election deadlines.
Who is eligible for commuter benefits?
Eligibility for tax-free commuter benefits is governed by IRS rules as well as the terms of your organization's plan.
Current employees generally qualify for federal tax exclusion. Certain leased employees or contractors may also qualify. Self-employed individuals aren't treated as employees for qualified transportation benefit purposes, and 2 percent shareholders in an S corporation are also excluded from this benefit.1
Commuter benefits and pre-tax contributions
The IRS sets monthly limits on how much qualified transportation benefits can be excluded from an employee's taxable wages, with separate maximums for transit and parking.1
For 2026, the monthly tax-exclusion limit is $340 for combined commuter highway vehicle transportation and transit passes and $340 for qualified parking, up from $325 for each category in 2025.1,2 Employees may receive both types of benefits at the same time. If the value of a benefit exceeds the applicable monthly limit, the excess generally must be included in the employee's wages.1 The IRS has not yet announced new contribution limits for the 2027 tax year.
Eligible expenses generally fall into two categories:
- Transit: Mass transit, including bus, rail, and ferry, as well as qualifying commuter highway vehicle transportation.1
- Parking: Parking at or near the workplace, or at or near a location from which an employee commutes to work using mass transit, a commuter highway vehicle, or a carpool.1
What isn't covered? Commuter benefits generally do not cover fuel, tolls, or mileage expenses. Rideshare expenses qualify only when the transportation arrangement meets the federal requirements for a commuter highway vehicle.1
Setting clear expectations around eligible expenses upfront can help you prevent employee frustration and reduce support tickets down the line.
Why should benefits teams offer a commuter benefits program?
How commuter benefits help employees
Employees who currently use tax-free commuter benefits report that the program makes their return-to-office experience more affordable and more convenient. In HealthEquity's survey, 60 percent of current users said commuter benefits made their commute more affordable, and 60 percent said they made their commute more convenient.
But there's still an awareness gap. Among employees who don't currently participate, the two main reasons respondents gave were that their employer doesn't offer commuter benefits or that they don't think the benefit applies to their commute method.
Benefits for employers
Commuter benefits aren't just a perk for your employees. They can also provide tax savings for your organization.
Qualified transportation benefits that don't exceed the applicable statutory monthly limits aren't treated as wages for FICA, FUTA, or federal income tax withholding purposes. As participation in pre-tax commuter benefits grows, employers may see payroll tax savings on qualifying amounts.3
A well-designed program can also support your return-to-office efforts. In HealthEquity's survey, 59 percent of employees who were concerned about commuting costs selected commuter benefits - more than any other factor presented - as something that would encourage them to come into the office more frequently.
Partner with a commuter benefits administrator
Think about everything your team would need to manage if you ran a commuter program in-house: enrollment, payroll files, card issuance, and program reporting – all on top of your already-full plate.
Partnering with a dedicated commuter benefits administrator can shift some of that operational load off your team by managing day-to-day responsibilities and providing reporting that can help you track program performance.
That means you can spend less time managing logistics and more time focusing on your benefits strategy.
Make commuting more affordable for your team
Commuter benefits give your employees a practical, pre-tax way to manage eligible transit expenses. At the same time, they can give your organization a path to payroll tax savings on qualifying amounts while supporting your broader return-to-office strategy.
You can also pair commuter benefits with other pre-tax accounts, like an HSA or a Limited Purpose FSA, to round out a more complete, cost-conscious benefits strategy for your team.
Ready to see what a commuter benefits program could look like for your organization? Learn more about HealthEquity's Commuter Benefits.
