Pre-Tax Commuting Benefits - Save 30-40% on Your Commute
Welcome to Saving Money with Andrew!
In a typical year, commuting is our family’s fifth or sixth largest spending category. When we lived in the city, unlimited subway passes were essential. After moving to the suburbs and working from home for months, we’re starting to return to the office and our commuting expenses are increasing substantially.
About eight million Americans commute to work via public transportation.[1] Although it’s a small fraction of working Americans (about 5%), it’s significantly higher among younger adults and, I suspect, among those who read this newsletter. Public transportation is a great deal, but it’s not cheap. Subway monthly passes in most cities run around $100 and commuter rail can easily cost hundreds of dollars monthly.
Enter pre-tax commuting benefits. Many of you are already familiar with these programs, but if you aren’t:
Under a commuter benefit program, participants can set aside up to $270 per month for eligible transit expenses, and another $270 per month for eligible parking expenses (parking near work, or near where you commute to work).[2]
These deductions are pre-tax, meaning that they reduce your taxable income dollar for dollar. If you are in the 24% federal tax bracket, for example, and pay 10% in state taxes, being able to pay for your commuting expenses with “pre-tax dollars” effectively saves you 34%.
If, for example, you spend $200 per month on commuting expenses and are in those tax brackets, you would save $68 in taxes per month (34% of $200), or about $800 per year, by using a commuter benefit program.
To get started, check with your employer’s HR or benefits department to see if they offer commuter benefits. Most larger companies do, and many states require most employers to do so.
Pre-pandemic, I typically used my employer’s commuter benefit program to purchase an unlimited subway pass to use for my daily commute. Now, I use a debit card provided by our program to purchase rail passes and pay for parking at the train station. This lets me take advantage of the tax savings, while not having to commit to a monthly pass.
There are a few downsides of these programs. The most important one is that you generally can’t get back any funds put in a transit benefit account, as some people found out during the pandemic after leaving their jobs or switching to remote work. So, make sure not to put more on your transit balance than you need.
And now…Andrew’s pick(s) of the week:
I’ve been rewatching Bored to Death, a fun and quirky private detective comedy from 2009. Terrific performances from Jason Schwartzman, Ted Danson, Zach Galifianakis, and others.
This profile of Dr. Patrick Soon-Shiong, who started his medical career in South Africa under apartheid and is now worth eight billion dollars, is an incredible read.
I also enjoyed this 8-minute WSJ video on Chick-Fil-A, whose signature chicken sandwich has dominated fast-food rankings for decades. Did you know…out of 8000 applicants per year, the company chooses 130 new franchise operators, an acceptance rate well below Harvard and Stanford. The video also discusses the company’s various controversies over the years, largely arising from its willingness to express its founder’s conservative views.
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
[1] Commuting by Public Transportation in the United States: 2019. Even this low number has decreased further during the pandemic, but is starting to recover.
[2] These benefits are defined very broadly and even include things like taking an UberPool to work. Check with your employer’s HR department or commuter benefit administrator if you’re not sure.