Commuter Benefits: The $340 Monthly Limit and What It Does to Your Paycheck

Commuter benefits are one of the few paycheck deductions that cut your income tax and your Social Security and Medicare tax at the same time. If you have seen a line labeled "transit," "parking" or "commuter" in your benefits enrollment or on a pay stub, this is what it is: money taken from your pay before taxes to cover the cost of getting to work.

The IRS calls them qualified transportation fringe benefits. Most people just want to know three things: how much they can set aside, what it does to their take-home pay, and what happens if they overdo it. This guide covers all three, using IRS Publication 15-B as the source for the rules.

Open enrollment is also when many employers let you start or change a commuter election, so it is a good time to understand the numbers. For the bigger picture on how pre-tax elections work, see Pre-Tax vs Post-Tax Deductions: Which Election Saves More.

What Counts as a Commuter Benefit

There are three types of qualified transportation benefits, and an employer may offer any one or more of them at the same time:

• Transit passes. A pass, token, farecard, voucher or similar item that entitles you to ride mass transit, free or at a reduced rate. Think subway, bus, commuter rail or ferry fares.
• Commuter highway vehicle transportation. Rides in a highway vehicle that seats at least six adults, not counting the driver. In practice, this is a vanpool.
• Qualified parking. Parking your employer provides on or near the business premises, or at or near a location where you catch mass transit, a vanpool or a carpool. That includes a park-and-ride or station lot.

Transit and vanpool costs share one limit. Parking has its own. That distinction matters, and the next section explains it.

One note on reimbursements: cash reimbursement for transit passes qualifies only when a voucher or similar item is not readily available for your employer to hand out directly. Most payroll programs avoid the issue by using a pre-tax deduction and a pass or card.

The $340 Monthly Commuter Benefits Limit: Two Separate Caps

For 2026, the monthly exclusion is $340 for transit passes and commuter highway vehicle (vanpool) costs combined. Qualified parking has its own, separate $340 per month. The transit figure is up $15 from 2025, as announced in IRS IR-2025-103 and Rev. Proc. 2025-32.

Benefit	What it covers	2026 monthly limit
Transit pass	Bus, subway, rail or ferry passes, tokens and farecards	$340 (shared with vanpool)
Commuter highway vehicle	Vanpool seating at least six adults, not counting the driver	$340 (shared with transit)
Qualified parking	Parking at or near work, or at a transit station or park-and-ride lot	$340 (separate cap)

The two caps are not combined. Unused room under the parking cap cannot be moved over to transit, and the reverse is also true. If you drive to a station, park, and then take the train, you can use up to $340 a month for the train and up to $340 a month for the parking in the same month.

The IRS adjusts these limits for inflation each year. The 2027 figure has not been announced yet. It normally arrives in the annual inflation adjustment revenue procedure in the fall, so check your plan materials once it is out rather than assuming this year's number carries forward.

How Pre-Tax Commuter Benefits Lower Your Paycheck Taxes

Pre-tax commuter benefits run through what Publication 15-B calls a compensation reduction agreement. You agree to a lower paycheck, and your employer uses that money to provide the benefit. The reduction cannot exceed the monthly limits.

Amounts within the limits are excluded from your income. That has three effects on your pay stub:

• They are exempt from federal income tax withholding.
• They are exempt from Social Security and Medicare (FICA) taxes.
• They are not reported as taxable wages on your Form W-2.

The FICA part is what makes commuter benefits special. A traditional 401(k) deferral lowers your income tax but still has Social Security and Medicare tax taken out. A commuter deduction avoids both. Many states follow the federal treatment for income tax, but check your state.

On your pay stub, the deduction comes out before taxes are figured, so your taxable wages shrink and your net pay drops by less than the deduction itself. For a line-by-line walk through where each deduction lands, see How to Read Your Pay Stub: A Line by Line Guide and Gross Pay vs Net Pay: How Take-Home Pay Is Calculated.

One context point: employers cannot deduct the cost of qualified transportation benefits they pay or incur after 2017, but the employee exclusion still applies.

Illustration: What $340 a Month Saves

This is an illustration, not a personal take-home calculation. Putting $340 a month toward transit is $4,080 a year ($340 x 12). The table shows the federal tax that avoids, using the 22% and 12% federal brackets, plus the 7.65% combined Social Security and Medicare rate.

Item	22% bracket	12% bracket
Federal income tax saved	$897.60	$489.60
Social Security and Medicare saved	$312.12	$312.12
Total saved per year	$1,209.72	$801.72

In the 22% case, that works out to about $100.81 a month ($340 x 0.2965). These totals are before any state tax savings. Your actual result depends on your bracket, your state and how much of your commute is covered.

The 22% and 12% figures are marginal rates, meaning the rate on your last dollars of income. If that distinction is fuzzy, read Marginal or Effective? The Two Tax Rates People Mix Up. To see your own numbers, run your pay through the salary calculator with and without the deduction.

Elections, Changes and Unused Balances

Commuter benefits are not part of a Section 125 cafeteria plan. Publication 15-B lists transportation benefits among the benefits a cafeteria plan cannot include. They fall under their own section of the tax code, section 132(f). In practice, that means they usually do not lock you in for the whole plan year the way a health FSA election does.

The federal rules for elections (Treas. Reg. 1.132-9, Q/A-14) work like this:

• You must make the election before the pay is available to you.
• You can change or revoke it only going forward, not for a period that has already started.
• Unused reduction amounts can be carried over to later periods.
• Unused amounts cannot be refunded to you in cash.

Your employer's plan administrator may set its own deadlines for monthly changes and may have plan rules of its own, such as forfeiture when you leave the company. Read the plan documents before you pick an amount, and set it close to what you will actually spend.

If you are weighing this against other open enrollment choices, FSA vs HSA: Which One Actually Reduces Your Paycheck More? covers the health side.

What Happens Above the $340 Limit

If the benefit you receive in a month is more than the limit, the employer includes the amount over the limit in your wages, minus anything you paid for it with after-tax money. That amount is taxed. The excess cannot be treated as a tax-free de minimis benefit.

For example, a transit card worth more than $340 in a month does not make the first $340 taxable. Only the amount above it is. And because transit and parking have separate caps, going over on one does not use up room on the other.

What No Longer Qualifies

Bicycle commuting. The qualified bicycle commuting reimbursement exclusion was suspended for 2018 through 2025. Public Law 119-21, the One Big Beautiful Bill Act, permanently eliminated it for tax years beginning after 2025. Bike costs your employer reimburses are now taxable wages.

2% S corporation shareholders. A 2% shareholder of an S corporation is not treated as an employee for this benefit, so they cannot exclude it.

Is It Worth Signing Up?

If you pay for transit or parking out of pocket every month, a pre-tax deduction is usually a cheap way to pay for something you already buy. Run through this checklist:

• Do you spend money on transit, vanpool or work-related parking every month?
• Does your employer offer a payroll deduction, a card, or both?
• Is your planned monthly amount at or under $340 for transit and $340 for parking?
• Do you know your plan's deadline for changing the amount?
• Are you comfortable with the plan's rules on unused balances if you change jobs?

If most answers are yes, enrolling is worth a closer look. Pick an amount you will use, because you cannot cash out what is left.

Common Questions About Commuter Benefits