Qualified Transportation Fringe Benefit to Increase Monthly Limit in 2023

HIGHLIGHTS

• The 2023 monthly limit for transportation in a commuter highway vehicle and transit pass (combined) is $300.
• The 2023 monthly limit for qualified parking is $300.
• These amounts represent a $20 increase from the 2022 limits.

The IRS recently released Revenue Procedure 2022-38, which includes cost-of-living adjustments for employee qualified transportation fringe benefits for the 2023 taxable year, along with the annually adjusted numbers for 2023 for other tax provisions.

The combined monthly limit for transportation in a commuter highway vehicle and a transit pass will increase to $300 in 2023, up from the 2022 limit of $280. The monthly limit in 2023 for qualified parking will also increase to $300 from $280.

Qualified Transportation Fringe Benefits

Internal Revenue Code Section 132(f) allows employers to offer qualified transportation benefit programs to their employees on a tax-free basis. Under these programs, employees may have money withheld from their taxable compensation to pay or reimburse work-related expenses for qualified parking, transit passes and transportation in certain commuter highway vehicles (e.g., qualifying van pools). Employers may also provide these benefits tax-free to employees.

Section 132(f) establishes a maximum monthly amount of qualified transportation benefits employees may exclude from their income, subject to cost-of-living adjustments announced by the IRS before the beginning of each calendar year. Both employee pre-tax salary deferrals and employer-paid benefits, if any, count toward the maximum amount.

No Tax Deduction for Employers

Beginning in 2018, the Tax Cuts and Jobs Act of 2017 eliminated the employer tax deduction for qualified transportation benefits. The employer deduction is disallowed regardless of whether the benefits are paid directly by the employer, through a bona fide reimbursement arrangement or through a compensation reduction agreement.