Transportation Fringe Benefit Plans, often referred to as “Transit and Parking” accounts, are authorized under Section 132 of the IRS Code.
Section 132 of the Internal Revenue Code lists specific fringe benefits that employers can give to workers tax-free. These perks do not count toward an employee's gross taxable income.
P.L. 119-21 permanently eliminates the exclusion of qualified bicycle commuting reimbursements from your employee’s income for tax years beginning after 2025.
While not technically part of a cafeteria plan, they are a perfect complement to one. These accounts provide for the reimbursement of qualified mass transit and parking expenses employees incur when they commute to work. Employees can set aside up a limited amount of dollars per month for mass transit and a limited amount of dollars per month for parking on a pre-tax basis. See our blog article for more information on commuter benefit tax savings.
In our software we don't have a pretax section 132. As a workaround, use the Pretax 125 and set the monthly limit allowed by the IRS each year.
How to Set Up a Commuter Benefit Deduction in Payroll
Go to Settings > Payroll Settings > Deductions and Contributions.
Click the +Add a Deduction link
For Type Select Section 125 (This will lower the taxable wages for FICA and federal income tax, and State income taxes)
For Description we recommend you use Transit Sect 132
For method, use Fixed Dollar
For Limits, set a monthly limit using the IRS limits designated for Section 132. You will need to update the monthly limit in your software each time the IRS changes the allowed limit for the Transit Section 132.
A W2 box is not needed, but we recommend selecting Box 14 (other) label: Section 132
Next, add the Transit Sect 132 deduction type you just set up to the employee. Payroll > Employees > Employee list > Select the employee name > Deductions and Contributions tab.
Under the Deductions section click +Add Deduction
Select the Transit Sect 132
Add the deduction amount the employee wants to withhold for this benefit.
Click Save.