taxes

Commuting costs got you down?

Highlights
  • Money goes into these accounts before payroll taxes are computed.
  • You also may avoid state and local income taxes on contributions.
  • You can open both a transit and a parking account.

Even when you love your job, you probably don't like getting to it much of the time. There's the time on the road, the traffic jams and occasional accidents, not to mention the cost of gasoline.

Mass transit has its hassles, too -- crowded trains, waiting for a bus in the rain, and in some cases, it takes longer than driving because you have to make all sorts of connections.

Your boss can't do much about your actual commuting obstacles, but some companies are making workers' treks to the office a bit more tolerable by providing a tax-saving way to cover part of the transportation costs.

These workplaces offer their employees a benefit known as a Qualified Transportation Benefit, or QTB. They also are sometimes called a Commuter Savings Account, or CSA, or a Commuter Expense Reimbursement Account, or CERA.

Regardless of what your call them, they work the same. You contribute to a workplace account and then use that money to pay for public transportation and parking expenses that you incur getting to and from work.

The best part of these accounts is that your money goes into them before payroll taxes are computed. That then cuts your tax bill somewhat, while helping you put away money you would spend on commuting anyway.

Here's a look at how one hypothetical commuter saves with a QTB account.

Tax savings with a workplace transportation account
 With an accountWithout an account
Taxable income$40,000$40,000
Less contributions of $110 per month$1,320$0.00
Result in taxable income after contributions$38,680$40,000
Less federal income and Social Security taxes withheld$9,053$9,484
Results in net income$29,627$30,516
Less commuting costs paid outside of transportation account$0$1,200
Results in spendable income$29,627$29,316
Tax savings$431$0
Source: SHPS Holdings, Inc., a Louisville, Ky.-based health care and employee benefits outsourcing provider.

In addition to saving on federal taxes, depending on your state's tax laws, you also may also avoid state and local income taxes on contributions to your commuter account.

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Two types of accounts
There are two basic ways to get to work, by vehicle or by mass transit. The tax code rules governing transportation benefits allow you to put money aside in separate accounts to pay for both commuting methods.

And while the commuter in the example above put $110 a month into one transportation account, that's actually only about a third of the amount of money commuters could set aside in 2008.

This tax year, a combined total of $335 per month may be contributed to the two transportation accounts. With a 2008 transit savings account, you can contribute up to $115 a month. The money goes to pay for transit passes. In addition to the usual bus or train, van pools also qualify.

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