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Transit! It’s for more than just getting to work!
Did you know that pre-tax transit funds can be spent on transit for purposes other than commuting? Pre-tax parking, on the other hand, is limited to getting to and from work. Curious if your weekend subway ride or your trip to the doctor’s office is covered? Let’s break it down.
The Commuter Tax Benefit section of the Internal Revenue code, established in 1993, introduced a new way of providing transportation benefits to employees. The law allows employers to provide tax-free ways of paying for three expense categories: commuter highway vehicles (like vanpools), qualified parking, and transit passes.
While the law has evolved over time, the core definitions of these categories have stayed the same.
Because the IRS definition of transit passes doesn’t specifically limit the benefit to commuting or restrict who can use it, we often hear questions about how the benefit can be used. Can this benefit be used for non-work travel? Can someone other than the employee—like a family member—use it?
The IRS hasn’t issued a direct answer to these questions. But we can make some inferences based on guidance it's given in the past. In response to an employer who asked whether transit and parking benefits were limited to commuting, the IRS avoided directly addressing the transit question but stated with respect to the parking benefit, “Unlike transit passes, parking benefits may be used only by the employees themselves, and only in connection with their commutes to their places of employment.”
In contrast, the IRS did not state the same restrictions on transit passes. And the law itself refers only to use by a "person"—not necessarily the employee or a commuting trip.
So it's safe to say that the law doesn't restrict transit passes to work travel only. However, employers may choose to limit the use of transit passes further.
Short answer: It depends on how your benefits program is set up.
Employers make several key choices when designing their employees’ commuter benefits package. When employers are offering commuter benefits because they want to change behavior, such as reducing demand for parking, they’ll typically offer to subsidize some or all of their transit benefit. However, benefit managers worried about justifying the cost of their subsidies may be reluctant to allow subsidized transit funds to be spent on non-work trips. If the goal is to support commuting specifically, they might work with their commuter benefit provider to impose restrictions on how those funds can be used.
For example, a major tech company offers $100 a month for each employee towards transit. Employees receive this $100 as a tax-free benefit, meaning they don’t pay taxes on it, and get $100 on their commuter benefits card to use on transit. The employer can impose stricter limits on that $100 than the IRS. Maybe they don’t want their employees to use the subsidy on a weekend trip on Amtrak. If the employer chooses, they could work with their commuter benefit provider to ensure that $100 could only be spent on each employee’s local transit agency.
* As a matter of subjective preference, this sounds like an awesome summer vacation and Jawnt fully endorses this use of pre-tax transit funds.
Whether or not a commuter benefit card can be used by someone other than the employee—like a spouse or child—depends on how the employer sets up the program.
If an employer offers a pre-tax benefit (where employees set aside part of their own salary for transportation), there’s actually a financial incentive to allow flexible use. The more employees contribute pre-tax, the more the employer saves on payroll taxes—7.65% in FICA savings for every dollar used this way, up to the 2025 monthly cap of $325.
In that case, some employers may choose to let employees use their pre-tax benefit to purchase transit passes for family members, since both parties save: the employee gets more value, and the employer reduces payroll tax liability.
However, the situation changes when the employer is subsidizing the transit benefit (i.e., paying for part or all of it). If the intent is to support commuting, the employer may prefer to restrict use to the employee’s own work trips. That kind of restriction is allowed, and can be built into the program by working closely with a commuter benefits provider.
If you’re ready to learn more about how to design, implement, and promote the best commuter benefits program for your organization, get in touch.
