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University Pre-Tax Parking Deduction Benefit
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The best kind of benefit is a fringe benefit, right?
As it turns out, the IRS has a guide for Federal, State, and Local Governments (FSLG) governing the tax rules of fringe benefits and the reporting of fringe benefits! We ran into this the other day as my lovely wife was signing up for a parking pass at her school. As a graduate student, she’s technically faculty and an employee. Since it’s a public university, the University of Maryland, that makes her a government employee.
So she’s signing up for this parking pass and one checkbox surprised her:
I understand and agree that by giving authorization to have automatic parking deductions taken out of my paycheck the deduction will be on pre-tax basis and will not be included in my Federal, State or FICA wage base.
That’s when she asked me if she was reading it right – “Does that mean I’m paying for my parking pass with pre-tax money?”
The short answer is yes, the IRS lets the university offer that as a benefit up to $230 a month.
It’s surprising because it’s something neither one of us had experienced before. Any time you can pay for something pre-tax, you do so because it represents an immediate discount. We’re somewhere in the 25% tax bracket after deductions so everything pre-tax is an immediate 25% off.
Qualified Transportation Fringe Benefits
We knew it was legitimate because it was a University of Maryland website, it’s unlikely they’d run afoul of tax law without reviewing it a bazillion times (red tape FTW!) but I had to dig deeper and find out more. It turns out most public universities do it this way because they’re allowed to under the Qualified Transportation Fringe (QTF) Benefits rules.
The rules state you can (limits are $230 a month):
- Commuter transportation in a commuter highway vehicle
- Transit passes
- Qualified parking
- Qualified bicycle commuting expenses
The part that confused is that you can provide the benefit by way of a salary reduction agreement, which basically provides the benefit pre-tax without additional expense to the school.
Tricky huh? For our purposes, she can get $230 in qualified parking benefits each month and through a salary reduction agreement, pay for it with pre-tax dollars.
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We have that at work in downtown baltimore with a non-government company. it’s something that the irs gives everyone, but your hr just has to be good about knowing what savings it can pass to employees.
Nice. When I worked for the University of Illinois, our parking came out pre-tax too. I never really looked in to why, I was just happy to have the savings.
Some private companies offer parking and/or public transportation pre-tax. How is this University deal different?
It’s different because you can pay for it pre-tax as a direct payroll deduction.
My employer take money out of my salary each month pre-tax and puts it on a card that can only be used for transportion costs (parking and public transit).
I still don’t see the difference.
hey, at least you’ll save a few dollars per month up front
agree with texas wahoo. it’s pre-tax. direct payroll deduction.
no difference.
I work at a private university and enjoy the same benefit. It was very handy when I was commuting into the city on the train and would have had to pay $220 a month in post-tax money for a monthly pass.
How does being a grad student equate to being faculty?
It’s different because you can pay for it pre-tax as a direct payroll deduction
“Any time you can pay for something pre-tax, you do so because it represents an immediate discount.”
There is at least one exception to this rule – disability insurance.
If you pay for disability premiums with pre-tax money, the benefits are taxed. If you pay with after-tax money, they are not. This could amount to hundreds of thousands of dollars over a lifetime.
My wife’s employer (large enough to know better) nonetheless recommends paying for it with pre-tax money, since it is “unlikely that you will become disabled.”
But, hey, at least you’ll save a few dollars per month up front
It’s not a huge amount of savings, but every little bit helps for college students.
I never understood why faculty should be charged for parking i the first place.
A couple hundred bucks means a lot more to the lower level employees than it does the professors and deans.
god i wish my company offered transitcheck. it would save me quite a few dollars if i could use pretax income to buy my monthly transportation tickets. stupid small company
So, my employer offers this as well- BUT the catch is that I have 2 deductions out of my paycheck–one for the parking itself, taken out POST-tax, and then one that goes into a PRE-tax account that I’ll need to submit claims to. Explain that one to me. Aren’t I still paying taxes on the parking then?
No. The reimbursement from the pre-tax account is all that matters. Your taxes are reduced by the money allocated to that account. When you get reimbursement for the post-tax money spent, you get that post-tax money back.