Commuter Tax Benefit

Commuter Tax Benefit is sponsored by Internal Revenue Service (IRS). Allows employees to exclude certain transportation benefits from taxable income, reducing commuting costs.

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Including taxable benefits in pay. Contribution limit on a health FSA. “Use-or-lose” rule for health FSAs.

Exception for S corporation shareholders. Plans that favor highly compensated employees. Plans that favor key employees.

Simple Cafeteria Plans for Small Businesses Eligibility and participation requirements. Contribution requirements. 2.

Fringe Benefit Exclusion Rules Accident and Health Benefits Special rule for certain government plans. Exception for S corporation shareholders. Exception for certain long-term care benefits.

S corporation shareholders. Exception for highly compensated employees. Qualified small employer health reimbursement arrangements (QSEHRAs).

Exception for S corporation shareholders. Exception for S corporation shareholders. De Minimis (Minimal) Benefits Dependent Care Assistance Exception for highly compensated employees.

Exclusion for employer payments of student loans. Educational assistance program. Self-employed individuals, shareholders, and owners.

Exception for highly compensated employees. Employee stock options aren’t subject to Railroad Retirement Tax. Section 83(i) election to defer income on equity grants.

Employer-Provided Cell Phones Noncompensatory business purposes. Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Group-Term Life Insurance Coverage Exception for S corporation shareholders.

Exception for key employees. S corporation shareholders. Health Savings Accounts (HSAs) Partnerships and S corporations.

Lodging on Your Business Premises On your business premises. S corporation shareholders. Employer-operated eating facility for employees.

Exception for highly compensated employees. Meals on Your Business Premises On your business premises. Meals excluded for all employees if excluded for more than half.

Employees available for emergency calls. Proper meals not otherwise available. Meals you furnish to promote goodwill, boost morale, or attract prospective employees.

Meals furnished on nonworkdays or with lodging. S corporation shareholders. No-Additional-Cost Services Substantial additional costs.

Exception for highly compensated employees. Retirement Planning Services Transportation (Commuting) Benefits De Minimis Transportation Benefits Qualified Transportation Benefits Compensation reduction agreements. Commuter highway vehicle.

Qualified bicycle commuting reimbursement eliminated. Exception for S corporation shareholders. Relation to other fringe benefits.

Benefits more than the limit. Working Condition Benefits Vehicle allocation rules. Business use of your car.

Qualified nonpersonal use vehicles. Exception for independent contractors who perform services for you. Exception for company directors.

3. Fringe Benefit Valuation Rules Employer-provided vehicles. Regular use in your trade or business.

Consistency requirements. Items included in cents-per-mile rate. Highly compensated employee alternative.

Consistency requirements. Items included in annual lease value table. Using the special accounting rule.

Transferring an automobile from one employee to another. Prorated Annual Lease Value Unsafe Conditions Commuting Rule Commuting transportation. 4.

Rules for Withholding, Depositing, and Reporting Valuation of taxable fringe benefits. Choice of period for withholding, depositing, and reporting. Withholding and depositing taxes.

Additional Medicare Tax withholding. Paying your employee’s share of social security and Medicare taxes. Special rules for highway motor vehicles.

Election not to withhold income tax. Amount to report on Form 941 (or Form 943, 944, or CT-1) and Form W-2. Preparing and filing your tax return.

Getting answers to your tax questions. Need someone to prepare your tax return? Employers can register to use Business Services Online.

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Getting tax forms and publications. Getting tax publications and instructions in eBook format. Get a transcript of your return.

Reporting and resolving your tax-related identity theft issues. Understanding an IRS notice or letter you’ve received. IRS Document Upload Tool.

Contacting your local TAC. The Taxpayer Advocate Service (TAS) Is Here To Help You What Is the Taxpayer Advocate Service? What Are My Rights as a Taxpayer?

Publication 15-B - Additional Material Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits Publication 15-B - Introductory Material For the latest information about developments related to Pub. 15-B, such as legislation enacted after it was published, go to IRS. gov/Pub15B .

Cents-per-mile rule. The business mileage rate for 2026 hasn’t yet published at the time this publication was published. Go to IRS.

gov/Pub15B for the updated mileage rate for 2026. You may use this rate to reimburse an employee for business use of a personal vehicle, and under certain conditions, you may use the rate under the cents-per-mile rule to value the personal use of a vehicle you provide to an employee. See Cents-per-Mile Rule in section 3.

Qualified parking exclusion and commuter transportation benefit. For 2026, the monthly exclusion for qualified parking is $340 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $340. See Qualified Transportation Benefits in section 2.

Contribution limit on a health flexible spending arrangement (FSA). For plan years beginning in 2026, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,400. Moving expense reimbursement.

P. L. 119-21, commonly known as the One Big Beautiful Bill Act, permanently eliminates the exclusion for qualified moving expense reimbursements from your employee's income.

However, the exclusion is available in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station due to a military order. The exclusion applies only to reimbursement of moving expenses that the member could deduct if they had paid or incurred them without reimbursement. See Moving Expenses in Pub.

3, Armed Forces’ Tax Guide, for the definition of what constitutes a permanent change of station and to learn which moving expenses are deductible. P. L.

119-21 also makes the exclusion available to an employee or new appointee of the intelligence community (as defined in section 3 of the National Security Act of 1947 (50 U.S.C. 3003)) (other than a member of the Armed Forces of the United States) who moves pursuant to a change in assignment which requires relocation.

The exclusion applies only to reimbursement of moving expenses that an intelligence community employee or appointee could deduct if they had paid or incurred them without reimbursement. Bicycle commuting reimbursements. P.

L. 119-21 permanently eliminates the exclusion of qualified bicycle commuting reimbursements from your employee’s income for tax years beginning after 2025. See Qualified bicycle commuting reimbursement eliminated , later.

Withholding on supplemental wages. The withholding rate on supplemental wages remains 22% (37% if supplemental wages paid to an employee during the calendar year exceed $1 million) because P. L.

119-21 permanently extended the individual tax rates enacted in P. L. 115-97, Tax Cuts and Jobs Act.

See section 7 in Pub. 15 for more information about supplemental wages. Artificial intelligence (AI) literacy and AI development programs.

Executive Order (EO) 14179 , “Removing Barriers to American Leadership in Artificial Intelligence” (January 2025), and the subsequently published Winning the Race: America’s AI Action Plan (July 2025), were issued to promote AI literacy and development. Employer-provided AI literacy and skill development programs may be tax-free as working condition fringe benefits if they maintain or improve employee job skills at their current job.

See Working Condition Benefits , later. Direct deposit of employment tax refunds now available. EO 14247 , Modernizing Payments To and From America’s Bank Account, issued on March 25, 2025, promotes operational efficiency by mandating the transition to electronic payments for all federal disbursements.

Accordingly, the IRS will now issue employment tax return refunds by direct deposit. Direct deposit is a fast, simple, safe, and secure way to have your refund deposited automatically to your checking or savings account. Instead of a direct deposit refund, you can still choose to have your overpayment applied to your next return by checking the appropriate box on your employment tax return.

For more information, see the instructions for your employment tax return. Make balance due payments electronically. EO 14247 also promotes operational efficiency by mandating the transition to electronic payments for all payments made to the federal government.

Therefore, pay your balance due on your employment tax return electronically. There are several easy, safe, and secure ways to pay your balance due electronically. For more information, see the instructions for your employment tax return.

Employment tax return transcripts are now available electronically. You can now access Form 940, Form 941, Form 943, Form 944, and Form 945 return transcripts for tax years 2023 and later using your IRS business tax account. For more information, go to IRS.

gov/BusinessesTranscript . To access your IRS business tax account, go to IRS. gov/BusinessAccount .

Dependent care assistance exclusion from wages. For the 2026 tax year, the annual dependent care FSA limit was raised from $5,000 to $7,500 ($2,500 to $3,750 for married filing separately). See Exclusion from wages , later.

Employer’s meal deduction. For amounts incurred or paid after 2025, the employer can no longer deduct expenses associated with providing food and beverages to employees through an eating facility that meets the requirements for de minimis fringe benefits or for the convenience of the employer. The 50% deduction that applied through 2025 has been eliminated as part of a scheduled change in the 2017 Tax Cuts and Jobs Act.

See De Minimis Meals , later. Employer payments of student loans. P.

L. 119-21 permanently extends the $5,250 exclusion from income for employer-provided educational assistance for payments made after 2025. See Exclusion for employer payments of student loans , later.

Form 1099-NEC, Nonemployee Compensation. Use Form 1099-NEC to report nonemployee compensation paid in 2025. The 2025 Form 1099-NEC is due February 2, 2026.

Additional permitted election changes for health coverage under a cafeteria plan. Notice 2014-55, 2014-41 I. R.

B. 672, available at IRS. gov/irb/2014-41_IRB#NOT-2014-55 , expands the application of the permitted change rules for health coverage under a cafeteria plan and discusses two specific situations in which a cafeteria plan participant is permitted to revoke their election under a cafeteria plan during a period of coverage.

Definition of marriage. A marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by the state or territory of the United States in which the marriage is entered into, regardless of legal residence.

Two individuals who enter into a relationship that is denominated as a marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as a marriage under the laws of at least one state or territory of the United States, regardless of legal residence.

Individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that isn’t denominated as a marriage under the law of the state or territory of the United States where such relationship was entered into aren’t lawfully married for federal tax purposes, regardless of legal residence.

Notice 2014-1 discusses how certain rules for cafeteria plans, including health and dependent care FSAs, and health savings accounts (HSAs) apply to same-sex spouses participating in employee benefit plans. Notice 2014-1, 2014-2 I. R.

B. 270, is available at IRS. gov/irb/2014-02_IRB#NOT-2014-1 .

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You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. This publication supplements Pub. 15, Employer’s Tax Guide; and Pub.

15-A, Employer’s Supplemental Tax Guide. It contains information for employers on the employment tax treatment of fringe benefits. Comments and suggestions.

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Publication 15-B - Main Contents 1. Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.

A person who performs services for you doesn’t have to be your employee. A person may perform services for you as an independent contractor, partner, or director. Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services.

You’re the provider of a fringe benefit if it is provided for services performed for you. You’re considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you.

For example, if, in exchange for goods or services, your customer provides daycare services as a fringe benefit to your employees for services they provide for you as their employer, then you’re the provider of this fringe benefit even though the customer is actually providing the daycare. The person who performs services for you is considered the recipient of a fringe benefit provided for those services.

That person may be considered the recipient even if the benefit is provided to someone who didn’t perform services for you. For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee’s family. Are Fringe Benefits Taxable?

Any fringe benefit you provide is taxable and must be included in the recipient’s pay unless the law specifically excludes it. Section 2 discusses the exclusions that apply to certain fringe benefits. Any benefit not excluded under the rules discussed in section 2 is taxable.

Including taxable benefits in pay. You must include in a recipient’s pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. Any amount the law excludes from pay.

Any amount the recipient paid for the benefit. The rules used to determine the value of a fringe benefit are discussed in section 3 . If the recipient of a taxable fringe benefit is your employee, the benefit is generally subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement.

However, you can use special rules to withhold, deposit, and report the employment taxes. These rules are discussed in section 4 . If the recipient of a taxable fringe benefit isn’t your employee, the benefit isn’t subject to employment taxes.

However, you may have to report the benefit on one of the following information returns. IF the recipient receives the benefit as... an independent contractor Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. For more information, see the instructions for the forms listed above.

A cafeteria plan, including an FSA, provides participants an opportunity to receive qualified benefits on a pre-tax basis. It is a written plan that allows your employees to choose between receiving cash or taxable benefits, instead of certain qualified benefits for which the law provides an exclusion from wages.

If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead won’t make the qualified benefit taxable. Generally, a cafeteria plan doesn’t include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit.

Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. A cafeteria plan can include the following benefits discussed in section 2 . Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance).

Dependent care assistance. Group-term life insurance coverage (including costs that can’t be excluded from wages). HSAs.

Distributions from an HSA may be used to pay eligible long-term care insurance premiums or to pay for qualified long-term care services. A cafeteria plan can’t include the following benefits discussed in section 2 . Archer MSAs.

See Accident and Health Benefits in section 2. De minimis (minimal) benefits. Employer-provided cell phones.

Lodging on your business premises. No-additional-cost services. Retirement planning services.

Transportation (commuting) benefits. Working condition benefits. It also can’t include scholarships or fellowships (discussed in Pub.

970). Contribution limit on a health FSA. For plan years beginning in 2026, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,400.

A cafeteria plan that doesn’t limit health FSA contributions to the dollar limit isn’t a cafeteria plan and all benefits offered under the plan are includible in the employee’s gross income. For more information, see Notice 2012-40, 2012-26 I. R.

B. 1046, available at IRS. gov/irb/2012-26_IRB#NOT-2012-40 .

“Use-or-lose” rule for health FSAs. Instead of a grace period, you may, at your option, amend your cafeteria plan to allow an employee’s unused contributions to carry over to the immediately following plan year. For more information, see Notice 2013-71, 2013-47 I.

R. B. 532, available at IRS.

gov/irb/2013-47_IRB#NOT-2013-71 ; and Notice 2020-33, 2020-22 I. R. B.

868, available at IRS. gov/irb/2020-22_IRB#NOT-2020-33 . For these plans, treat the following individuals as employees.

A current common-law employee. See section 2 in Pub. 15.

A full-time life insurance agent who is a current statutory employee. A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Exception for S corporation shareholders.

Don’t treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder for this purpose is someone who directly or indirectly owns (for any day during the tax year) more than 2% of the corporation’s stock or stock with more than 2% of the voting power.

Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C. B.

184. Plans that favor highly compensated employees. If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected.

A plan you maintain under a collective bargaining agreement doesn’t favor highly compensated employees. A highly compensated employee for this purpose is any of the following employees. A shareholder who owns more than 5% of the voting power or value of all classes of the employer’s stock.

An employee who is highly compensated based on the facts and circumstances. A spouse or dependent of a person described in (1), (2), or (3). Plans that favor key employees.

If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. However, a plan you maintain under a collective bargaining agreement doesn’t favor key employees.

A key employee during 2026 is generally an employee who is either of the following. An officer having annual pay of more than $235,000. An employee who for 2026 is either of the following.

A 5% owner of your business. A 1% owner of your business whose annual pay is more than $150,000. Simple Cafeteria Plans for Small Businesses Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan.

Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. You’re an eligible employer if you employed an average of 100 or fewer employees during either of the 2 preceding years.

If your business wasn’t in existence throughout the preceding year, you’re eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you’re considered an eligible employer for any subsequent year until the year after you employ an average of 200 or more employees.

Eligibility and participation requirements. These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan.

You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement if there is evidence that the benefits covered under the cafeteria plan were the subject of good-faith bargaining, or Are nonresident aliens working outside the United States whose income didn’t come from a U.S. source.

Contribution requirements. You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year; or An amount that is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less.

If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can’t be greater than the rate of contribution to any other employee. For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. 2.

Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient’s pay.

In most cases, the excluded benefits aren’t subject to federal income tax withholding, social security tax, Medicare tax, federal unemployment tax under the Federal Unemployment Tax Act (FUTA), or Railroad Retirement Tax Act (RRTA) taxes and aren’t reported on Form W-2. This section discusses the exclusion rules for the following fringe benefits. Accident and health benefits.

De minimis (minimal) benefits. Dependent care assistance. Employer-provided cell phones.

Group-term life insurance coverage. Lodging on your business premises. No-additional-cost services.

Retirement planning services. Transportation (commuting) benefits. Working condition benefits.

See Table 2-1 for an overview of the employment tax treatment of these benefits. Table 2-1. Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section.)

Treatment Under Employment Taxes Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) 1 Federal unemployment (FUTA) Accident and health benefits Exempt (except 2% shareholder-employees of S corporations). Exempt 2 up to $1,600 for qualified plan awards ($400 for nonqualified awards).

Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children, and the facility is operated by the employer on premises owned or leased by the employer. De minimis (minimal) benefits Dependent care assistance Exempt 3 up to certain limits, $7,500 ($3,750 for married employee filing separate return). Exempt up to $5,250 of benefits each year.

(See Educational Assistance , later in this section.) Exempt 3 up to certain limits. (See Employee Discounts , later in this section.)

See Employee Stock Options , later in this section. Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Group-term life insurance coverage Exempt 2 4 6 up to cost of $50,000 of coverage.

(Special rules apply to former employees.) Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. (See Health Savings Accounts , later in this section.)

Lodging on your business premises Exempt 2 if furnished on your business premises, for your convenience, and as a condition of employment. Exempt 2 if furnished on your business premises for your convenience. No-additional-cost services Retirement planning services Transportation (commuting) benefits Exempt 2 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($340) or qualified parking ($340).

(See Transportation (Commuting) Benefits , later in this section.) Exempt 3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Working condition benefits 1 Or other railroad retirement taxes, if applicable.

2 Exemption doesn’t apply to S corporation employees who are 2% shareholders. 3 Exemption doesn’t apply to certain highly compensated employees under a program that favors those employees. 4 Exemption doesn’t apply to certain key employees under a plan that favors those employees.

5 Exemption doesn’t apply to services for tax preparation, accounting, legal, or brokerage services. 6 You must include in your employee’s wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee’s Form W-2.

Also, show it in box 12 with code C. The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following.

Contributions to the cost of accident or health insurance including qualified long-term care insurance. Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Contributions to Archer MSAs or HSAs (discussed in Pub.

969). This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. Payments or reimbursements of medical expenses.

Payments for specific permanent injuries (such as the loss of the use of an arm or leg). The payments must be figured without regard to the period the employee is absent from work. This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27 at the end of the tax year) in the event of personal injury or sickness.

The plan may be insured or noninsured and doesn’t need to be in writing. For this exclusion, treat the following individuals as employees. A current common-law employee.

A full-time life insurance agent who is a current statutory employee. A former employee you maintain coverage for based on the employment relationship. A surviving spouse of an individual who died while an employee.

A surviving spouse of a retired employee. For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Special rule for certain government plans.

For certain government accident and health plans, payments to a deceased employee’s beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. See section 105(j) for details. Exception for S corporation shareholders.

Don’t treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (for any day during the tax year) more than 2% of the corporation’s stock or stock with more than 2% of the voting power.

Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C. B.

184. You can generally exclude the value of accident or health benefits you provide to an employee from the employee’s wages. Exception for certain long-term care benefits.

You can’t exclude contributions to the cost of long-term care insurance from an employee’s wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance.

However, you can exclude these contributions from the employee’s wages subject to social security, Medicare, and FUTA taxes. S corporation shareholders. Because you can’t treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee’s wages subject to federal income tax withholding.

However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses not made under a plan set up to benefit all employees or certain groups of employees) from the employee’s wages subject to social security, Medicare, and FUTA taxes. See Announcement 92-16 for more information. You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5.

Exception for highly compensated employees. If your plan is a