A transportation spending account can save you money by reducing your pretax income. The accounts are in compliance with IRS Code, Section 132. They function similarly to medical or dependent care flexible spending accounts. As with an FSA, your employer keeps some of your pay in an account until you need it for covered benefits. The monthly pretax deductions from your paycheck can make a noticeable difference in your annual taxable income. Here’s how it works:
– You calculate your costs to commute to work via public transportation, van pool or bicycle.
– You also calculate any commuter related parking expenses.
– You and your employer decide how much of this amount you should put into your transportation account each month.
– You authorize your employer to make TSA deductions from your paycheck.
– Your deductions will be made before federal, state and local taxes are calculated, therefore reducing your taxable income.
What benefits are covered by a TSA account?
A transportation spending account covers commuter costs, except gas, tolls and other vehicle-related expenses. You may be reimbursed for the following items with pretax dollars from your TSA account:
– Expenses for public transportation: subways, buses, ferries, commuter rail, and van-pools
– Transit passes
– Parking at work or from a location from which you commute (not close to home)
– Bicycle related expenses: “The purchase of a bicycle, and bicycle improvements, repair, and storage..”
-IRS publication 15-B has additional details on covered TSA expenses.
What is the maximum transportation deduction?
As with any benefit, the IRS places limits on transportation spending account pretax deductions. The 2012 benefit maximum for transportation is $125 per month, $1500 annually. For parking, the benefit is $240 a month and $2880 annually. If you ride your bicycle to work, the IRS allows a $20 per month maximum benefit “..per qualified month.” That’s $240 annually. Transportation spending accounts also include an inflation adjustment provision, so the benefit amounts will increase over time.
You and your employer will decide on a deduction in an amount that is appropriate to your personal circumstances. Your commuting expenses may not qualify you to take the maximum deductions; but if they do, you could reduce your annual taxable income by $4,380. That would have a significant effect on the taxes you pay.
How do you access your transportation benefit
You can make a claim against your transportation spending account by turning in receipts for qualified expenses, just as you would a medical claim. Fortunately, flexible spending accounts have been around long enough for employers to offer a few other creative claim solutions. Before you sign up for a TSA account, check with your Human Resources administrator to see if your company offers one of these distribution methods that might meet your needs:
– TSA bank-based debit cards
– Discount commuter passes purchased on your behalf from local public transportation services
– Reimbursement for commuter passes purchased directly from your local commuter rail or bus company.
– Debit card spending accounts with online administration through independent HR services such as Payflex.com or Chard Snyder
If you drive to work by yourself every day, perhaps it’s time to start thinking about commuting in a different way. The cost of driving can put a big dent in your budget. Why not make the daily trip in a way that will save money and reduce your taxes. With TSA debit cards and online administration, using a transportation spending account may be easier than you think. When you calculate your taxes at the end of the year, you’ll find it was well worth the effort.