New tax law hits commuter benefits....

The Transportation Deduction is another example of how simple structuring changes can maintain deductions removed by the 2017 tax act, formerly “the Tax Cuts and Jobs Act.”. In October, the IRS released Rev. Proc. 2017-58, announcing the adjusted monthly limit of $260 for qualified transit costs and parking. On December 22nd, the president signed into law the 2017 Tax Act which removed the deduction of Qualified Transportation Fridges by employers in Section 274. However, pretax deductions by employees under Section 132 remain unchanged under the Act.

What does it all mean? Take an example where an employer provides a $260 a month parking benefit to employees, in 2018 they cannot deduct it on their federal income tax return. To get around this, simply increase the employees’ salaries by $260 per month, and have the employees make a $260 pretax parking deduction. The result, the employer gets the $260 deduction classified as wages, and the employee is able to receive the $260 benefit pretax.