Tax Credit for Carpooling to Work

Carpooling saves money and you might get a tax break too.

Carpooling saves money and you might get a tax break too.

Getting to and from work can be pricey. There’s gas, vehicle maintenance and parking to pay for. Technically, the Internal Revenue Service doesn’t have any tax credits to cover carpooling or other commuting costs. However, under the American Recovery and Reinvestment Act these expenses are considered a qualified fringe benefit. That means you don’t have to pay taxes on carpooling or other commuting expenses.

Carpools

A carpool is a simple idea: two or more people ride to work in the same car or van instead of driving separate vehicles. Everybody saves money, there’s less traffic congestion and fewer cars means less pollution and carbon emissions to harm the environment. A vanpool works the same way, except that you use a commuter van that carries more people than a car. Employers sometimes provide commuter vans that you can ride in for a fee.

Tax Break

IRS rules let you exclude up to $245 per month from your taxable income for commuting expenses. The exclusion can apply to the cost of carpooling, commuting on your own or payments for riding in a commuter van provided by your employer. You can even count transit-system fees. The $245 limit applies to your individual costs. For example, if there are four people in your carpool, all persons can claim their shares of the cost up to $245 each.

Parking

Parking fees can add up, especially if you work in a downtown urban area. The exclusion for carpools and other commuting expenses doesn’t cover parking. That’s because the American Taxpayer Relief Act of 2012 provides a separate exclusion of up to $245 per month for parking. Suppose you have $245 per month in qualified carpool expenses and you pay $245 each month for parking. You can get the tax break for both. That raises the maximum to $490 per month. That means up to $5,880 of commuting costs each year can be tax-free.

How It Works

As an employee, you can ask your employer to exclude your carpool and parking expenses from your gross income before calculating how much federal income tax, Social Security tax and Medicare tax to withhold. Suppose you make $5,000 per month and can claim the maximum $490 per month in commuting and parking costs. Your employer figures taxes on only $4,510 per month. The excluded money does not appear on your yearly W-2 statement. The end result is that you pay no federal taxes on your carpool expenses.

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