Qualified Transportation Fringe Benefit Limits to Increase in 2023

Oct 20, 2022 | GTM Blog, Household Payroll & Taxes, Newsworthy

The IRS has released its cost-of-living adjustments for employee-qualified transportation fringe benefits for the 2023 tax year.

The IRS has released its cost-of-living adjustments for employee-qualified transportation fringe benefits for the 2023 tax year and 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

The IRS allows employers – including families with household help – 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).

Families may also provide these benefits tax-free to their employees.

The IRS established a maximum monthly amount of qualified transportation benefits employees may exclude from their income, subject to cost-of-living adjustments announced by the agency 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 family, through a bona fide reimbursement arrangement or through a compensation reduction agreement.

GTM can help

Have questions about paying your nanny the right way including how to reduce your and your employee’s tax obligations? Give us a call at (800) 929-9213 for a complimentary, no-obligation consultation with a household employment expert. Or schedule time with us at your convenience.