Which Transportation Expenses are FSA Eligible?

The benefits landscape has seen some change across the U.S. Due to a number of factors— from the demands of younger generations like millennials to cash-strapped startups looking to set their companies apart—small businesses are beginning to offer a new plethora of fringe benefits to employees. One benefit that’s on the rise is covering FSA eligible transportation expenses, sometimes known as a TSA, a transportation spending account.

What is a transportation spending account?

A transportation spending account allows an employee to use pre-tax funds for work-related commuting, which can also include parking costs. It’s important to note that this benefit is typically only available to the employee, not his or her dependents and that it consists of two related but separate benefits: parking and transportation costs.

How does a transit FSA work?

Utilizing a transit FSA is generally an optional benefit which employees can elect to participate in. When they do opt in, a specific estimated amount is deducted from each paycheck before taxes to be used to cover parking and transportation expenses related to work. FSA eligible transportation expenses can either be pre-loaded into a debit card or can be handled through reimbursements instead.

What transportation expenses are FSA eligible?

The trickiest part of offering FSAs for transportation is communicating to your employees what is and isn’t covered by their FSA plan. Each plan is different but in general, the following parking expenses are covered by TSA accounts:

• Parking expenses incurred at work
• Parking expenses incurred at a location where you park to commute to work by mass transit
• Carpooling in a commuter highway vehicle
• Vendor parking lots
• Vendor parking garages

These transportation expenses are also usually included:

• Bus transportation
• Mass transit vehicles and passes (think bus, subway, and ferry transportation)
• Passes, vouchers, or other similar means for commuting on mass transit
• Vanpooling: the transportation between an employee’s home and work in a vehicle that seats at least six adults in addition to the driver and a minimum of 80% of the vehicle’s mileage is for commuting

Just as important as understanding what is covered by an FSA transit plan is knowing what isn’t covered so that your employees can avoid spending on items that they won’t be reimbursed for or can’t deduct. Again, each plan is unique, but common transportation and parking elements that aren’t included are:

• Parking expenses at an employee’s home
• Parking expenses that aren’t incurred near work (i.e., parking expenses incurred at offsite meetings)
• Carpooling
• Gas
• Toll fees

Before you begin offering TSA benefits to your employees it’s important to think through exactly what your plan will cover and how you’ll clearly communicate that to the people that work for you. While there is some wiggle room, there are some strict federal tax laws that have to be followed no matter what, so it’s important for you to read up on those first so you don’t end up in any unexpected tax trouble along the way.