Salary-reduction agreements for parking costs and transit passes.

Kiplinger Tax Letter, The, February, 2001

Employees can cut their pay to cover parking and transit passes. Final IRS regulations OK salary-reduction agreements of up to $180 a month for parking expenses and up to $65 per month for commuter fare cards, etc. Employees save taxes because their income is lower. Employers benefit too because they owe less Social Security and Medicare taxes on reduced pay.

Salary-reduction elections can be retroactive to a limited extent. Employees must elect before the last day of a month to reduce their pay for that month to cover their parking or mass-transit expenses, IRS says.

Cash reimbursements are allowed for parking and transit passes up to monthly caps, with only minimal certification needed from employees.