Dear Tax Talk:
My company provides employees at our location a $3,000 per year transportation allowance. It is equivalent to the bus fare/parking allowance provided to our headquarter employees. Several employees have said that the IRS has ruled that if your company pays a portion of your commute that the rest is deductible up to the 48.5 cents/mile limit. It is purely a commute -- there are no business miles included. The company is deducting taxes from the allowance as normal income. These employees plan to claim the difference as a deduction. Is this deduction allowed?
Get onboard the bus or skip the deduction. Your headquarter employees are receiving a tax-free fringe benefit. However, that doesn't mean the field office employees can invent their own tax law.
The tax law allows employers to provide employees tax-free benefits for commuting on public transport or certain car-pooling arrangements. The motivating factor for the government in allowing this tax-free benefit is the conservation of resources: Reduced congestion and energy savings.
Employers can either provide this benefit from the goodness of their coffers or as part of a cafeteria plan. When an employer provides the benefits, they are being socially responsible. In a cafeteria plan, an employee converts taxable income into tax-free income.
Although several of your co-workers are under the belief that they can deduct an equivalent amount of benefits on their tax return, that doesn't make it the law. There is no equivalent provision in the law that allows taxpayers a deduction for commuting, either in their own vehicles or on public transportation.
Similarly, there is no provision for an employee to deduct the cost of parking at a garage at or near their employer's place of business. Commuting to work and parking at work are considered personal expenses and therefore not deductible when paid personally by an employee.