2026 Commuter Benefits Limits: Transit and Parking

• The 2026 monthly limit is $340 for transit and vanpooling and $340 for qualified parking, each up from $325 in 2025, per IRS Revenue Procedure 2025-32.
• Commuter benefits run under IRC §132(f), not Section 125, so they need no plan document, no nondiscrimination testing, and no annual election lock.
• New York City, New Jersey statewide, Washington D.C., Seattle, and the San Francisco Bay Area legally require covered employers to offer a pre-tax transit benefit.
• Employer FICA recapture on commuter elections runs at the same 7.65% rate as a Section 125 election, per IRC §3111.
• The employer bicycle commuting reimbursement exclusion remains suspended through 2026 under the Tax Cuts and Jobs Act.

A marketing coordinator in midtown Manhattan parks her car in a garage near the train station, then rides the rest of the way into the office. Under the 2026 IRS rules she can run up to $340 a month for that parking spot and a separate $340 a month for her monthly transit pass through her paycheck before federal income tax, Social Security, and Medicare are calculated, a combined $680 a month that never touches her taxable wages. Her employer's FICA bill drops by 7.65 cents on every one of those dollars. Neither of them needs a Section 125 cafeteria plan to make it happen. Here is exactly how the numbers, the legal mechanics, and the city-by-city mandates work for 2026.

What are the 2026 commuter benefit limits?

The 2026 monthly pre-tax limit is $340 for transit passes and vanpooling, and a separate $340 for qualified parking, according to IRS Revenue Procedure 2025-32. Both figures rose from $325 in 2025, a $15 increase, or roughly 4.6%, in line with the IRS's annual cost-of-living adjustment for qualified transportation fringe benefits under IRC §132(f).

How commuter benefits work under IRC §132(f)

A commuter benefit lets an employee set aside part of their paycheck, before federal income tax, Social Security, and Medicare are withheld, to pay for a transit pass, vanpool fare, or qualified parking. The employer either lets the employee pay with pre-tax payroll dollars, contributes toward the benefit directly, or does both, up to the monthly IRS limit. Anything an employee elects above the monthly cap is treated as ordinary taxable wages, the same over-the-limit treatment that applies to a Section 125 election above its own IRS cap.

Why commuter benefits aren't part of your Section 125 plan

Commuter benefits are authorized by IRC §132(f), a separate provision from the Section 125 cafeteria plan rules in IRC §125. A §125 plan requires a written plan document, an annual election period, and nondiscrimination testing across three separate tests. A §132(f) commuter benefit requires none of that. An employer can offer a transit benefit to a single department, or even a single employee, without extending it company-wide and without running any test, because §132(f) has no nondiscrimination requirement at all. Most Benecor clients still run both benefits through the same payroll deduction codes for administrative simplicity, but the two are legally distinct, and an employer offering only a commuter benefit does not need a §125 plan document to do it. See our complete Section 125 guide→ for how the cafeteria plan rules work when you do want to combine the two.

Why you can change your election every month

A Section 125 health FSA election is locked for the plan year except for a qualifying life event. A commuter benefit election has no such lock under §132(f). Most employer plans let an employee raise, lower, or cancel a transit or parking election before nearly any pay period, which matters for a workforce with seasonal commuting patterns, a return-to-office schedule that changes month to month, or an employee who just moved and now drives instead of taking the train.

Can you use the transit and parking benefits at the same time?

Yes. The IRS treats transit and parking as two independent $340 monthly limits, not one combined figure that has to be split between them. An employee who drives partway and then rides transit the rest of the way, a pattern common in large metro areas, can elect the full $340 for parking and the full $340 for transit in the same month, sheltering up to $680 from federal income tax and FICA. An employee who only drives and parks at the office, with no transit leg, can only use the parking limit, since the transit benefit requires an actual transit pass or vanpool expense to reimburse.

How much does an employer actually save?

The employer-side math

Employer FICA recapture on a commuter benefit runs at the same 7.65% combined Social Security and Medicare rate that applies to a Section 125 election, under IRC §3111. A 40-employee company where every employee elects $200 a month in combined transit and parking generates $15.30 in employer FICA savings per employee per month, or $612 a month, roughly $7,344 a year, across the full roster. A 250-employee company at the same $200 monthly election averages $45,900 a year in employer FICA recapture, calculated the same way Benecor models Section 125 employer savings, classification by classification.

The employee-side math

An employee in the 22% federal bracket who elects the full $340 transit limit saves $74.80 a month in federal income tax and $26.01 a month in FICA, a combined $100.81 a month, or $1,209.72 a year, on a commute the employee was already paying for out of pocket. Adding the full $340 parking election on top roughly doubles that figure for an employee who both drives and rides transit.

Which cities and states require this benefit?

A handful of jurisdictions do not leave the commuter benefit up to employer discretion. Where an employer operates above the local size threshold, offering a pre-tax transit benefit is a legal requirement, not a perk, and the requirement is enforced independently of anything the employer does with Section 125.

New York City and New Jersey

New York City requires employers with 20 or more full-time employees to offer a pre-tax transit benefit to full-time staff, under Local Law 53 of 2016, enforced by the city's Department of Consumer and Worker Protection. New Jersey extended a nearly identical requirement statewide for employers with 20 or more employees under P.L. 2019, c.38, effective 2020, making it the first state to mandate the benefit outside a single city.

Washington D.C., Seattle, and the Bay Area

Washington D.C. requires covered employers with 20 or more employees to offer a pre-tax transit benefit under the Sustainable DC Act. Seattle imposes a similar requirement on employers with 20 or more employees within city limits under its Commuter Benefits Ordinance. The San Francisco Bay Area runs its mandate regionally through the Bay Area Commuter Benefits Program, jointly administered by the Metropolitan Transportation Commission and the Bay Area Air Quality Management District, covering employers with 50 or more full-time employees across nine counties. An employer operating in any of these jurisdictions should confirm compliance independently of whether it also runs a Section 125 plan.

Do unused commuter benefit dollars expire?

Generally no, and this is one of the sharpest differences from a Health FSA. Section 132(f) carries no statutory use-it-or-lose-it requirement, so most commuter benefit administrators let an employee's unused transit or parking balance roll forward to the next month rather than forfeiting it at plan year-end. The exact mechanics still depend on the employer's specific vendor agreement, so an employee should confirm the rollover policy with HR or the benefits administrator rather than assuming every plan behaves identically.

What happened to the bicycle commuting benefit?

Before 2018, an employer could reimburse an employee up to $20 a month tax-free for bicycle commuting expenses under §132(f). The Tax Cuts and Jobs Act suspended that exclusion for tax years 2018 through 2025, and the suspension currently extends through 2026 under the same statute. An employer can still reimburse an employee for bicycle commuting costs today, but the reimbursement is treated as ordinary taxable wages, not a pre-tax qualified transportation fringe benefit, until Congress acts to restore it.

Adding commuter benefits alongside your Section 125 plan

Because §132(f) requires no plan document and no nondiscrimination testing, adding a commuter benefit is faster to launch than a new Section 125 benefit. Most Benecor clients running an existing §125 plan add commuter benefits within a single payroll cycle.

1. Confirm mandate exposure. Benecor checks every work location against current city and state commuter benefit ordinances before recommending a structure.
2. Set transit and parking as two separate payroll line items. Each tracks against its own $340 monthly limit so employees who qualify for both can use both.
3. Configure the election as a true month-to-month benefit. No annual lock, no open enrollment requirement, matching what §132(f) actually allows.
4. Run a test payroll cycle. Confirms the elected dollars are excluded from Box 1, Social Security wages, and Medicare wages before the benefit goes live.

Common commuter benefit mistakes employers make

The most common mistake is treating the transit and parking limits as one combined $340 cap instead of two separate $340 caps, which under-delivers the benefit to any employee who both drives and rides transit. The second common mistake is locking the election for a full plan year out of habit, carried over from how the employer runs its Health FSA, when §132(f) allows month-to-month changes. The third is assuming a commuter benefit requires a Section 125 plan document to exist at all, and delaying the rollout of a benefit that, on its own, needs neither a plan document nor nondiscrimination testing.