With changes in federal law taking effect January 1, 2005, commuters who participate in employer-sponsored transit benefit programs can now save up to $500 annually. Employers save more on payroll taxes as well—up to $120 per employee.
Beginning January 1, the maximum benefit for tax-free transit rises to $105 per month, as part of IRS Section 132(f). The law will allow employers to give employees up to $1,260 per year in transit value as a pre-tax payroll deduction or a tax-free employee benefit.
“After informing our employees about the new cap, people in the office were happy—every increase helps,” said Ruth Soderback of Trinity Capital Corporation in San Francisco. “The program now offer even larger savings to our employees, and don't pay taxes on it. The news is good for those who commute from the East Bay and the Peninsula. It's a huge savings for them.”
For more specific information please see IRS Revenue Procedure 2004-71, dated November 19, 2004. The IRS link where you can obtain a copy of this document is: http://www.irs.gov/pub/irs-drop/rp-04-71.pdf. These new limits are found under section .12 "Qualified Transportation Fringe" on page 9.