There’s no way around it: The work commute is a frustrating way to start (and finish) the day, especially if your office is in a huge metro area like LA, SF, DC, or Boston.
(See this hilarious post from our Founder and CEO for the real-life struggles of a city commute!)
Besides sitting in the car for 30+ minutes every time, there’s something odd about employees having to pay to go to work. But depending on your return-to-office policies or the nature of your industry, it could be a necessity for your employees to make the trek.
To ease the burden on your people, parking reimbursement is a low-cost benefit that’s easy to set up. And it benefits your employees — you can exclude reimbursements from their wages (up to a certain amount).
What is parking reimbursement?
Parking reimbursement for employees is a fringe benefit where employers pay back their employees for work-related parking expenses on a tax-free basis. Employees pay upfront for qualified expenses, submit a claim form, and then receive the repayment through payroll.
Eligible expenses include:
- Parking fees, such as daily or monthly costs at a designated lot or garage
- Metered or timed parking on the street
- Parking expenses incurred while traveling for work
- Expenses for parking at a job site away from the employee’s regular workplace
You can offer parking reimbursement as a standalone benefit, but most companies include it in a more comprehensive commuter benefits package.
How parking reimbursement works
Aside from the tax-related technicalities (more on that next), parking reimbursement is quite simple.
- Set an upper limit or a per-month/reimbursement cycle cap.
- Create an enrollment form.
- Employees submit claims for their parking expenses (receipts, proof of payment, etc.) to HR.
- HR processes each claim.
- They disburse the funds through payroll (direct deposit).
With a stipend platform, the process is easy to manage (and, in some ways, automate).
Psst: Our Compt platform can help you quickly and painlessly set up a parking stipend, plus more tax-compliant benefits, too. Get in touch with us to find out more!
Ready to set up a parking reimbursement for your people?
Our Compt platform can help you quickly and painlessly set up a parking stipend, plus even more tax-compliant benefits.
Why offer parking reimbursement as a benefit?
Well, for starters: the money.
Parking costs add up fast
Bankrate analyzed Americans’ average commuting costs and found the typical American spends $8,466 per year on their daily commute (~19% of their annual income, on average).
While some of that naturally goes toward gas and vehicle maintenance, parking fees are a not-insignificant part of the equation. Depending on your office’s location, you could be looking at anywhere from $150 to $300 per month or well over $300 in high-cost-of-living cities like San Francisco.
If you have employees in New York City, Los Angeles, Washington D.C., or Boston, you’re likely looking at an average of over $9,000 that your employees are paying! But this varies significantly by your employees’ location.
Even in a hybrid work model, daily parking adds up fast — so much so, that paying for a monthly parking pass is often cheaper, even if employees only come in a few times a week.
It helps with returning to the office. Many companies ask employees to return to the office after working remotely during the pandemic. By offering parking reimbursement, parking becomes one less cost employees have to worry about.
It’s also good for employee retention.
Many see commuting as a tremendous inconvenience, and the cost greatly contributes to that. It’s part of why 94% of workers say they want more flexibility in how/where they work.
It might be required by law.
Certain states and cities have requirements regarding offering commuter benefits to employees that work in those municipalities. This list includes; New York City, New Jersey, Philadelphia, Washington D.C., Seattle, Los Angeles, Bay Area, San Francisco, Richmond and Berkeley, CA. This list is subject to change, so ensure you review the regulations in the areas where your employees are located.
That means not offering this benefit can be a deal-breaker for your employees.
Getting sick and tired of paying for parking might be the final push someone needs to say ‘Yes’ to that remote job offer or start replying to the recruiters flooding their LinkedIn DMs.
Employee tax implications of parking reimbursement
Parking reimbursement is considered a Qualified Transportation Fringe Benefit (QTF for short).
According to IRS 2024 Publication 15-B, the monthly exclusion limit for qualified parking is $315, an increase from the previous year’s $300. This means employers can exclude the covered cost of parking up to $315 per month per employee from their gross income, and it is not considered taxable income for the employee.
Suppose the value of a qualified parking benefit received in any month is more than the limit. In that case, the excess amount must be included in the employee’s wages, minus any amount the employee paid for the benefit. The excess is subject to FITW, FICA tax and FUTA tax.
There is also a monthly exclusion of $315 for mass transit passes and commuter highway vehicle transportation. These two limits are separate and can only be used for their respective purposes.
While it’s a seemingly straightforward benefit, giving your employees a parking stipend can ease at least some of the financial burdens of commuting to work, whether or not they do it every day.
With a flexible stipend platform, you could even broaden these benefits out to include reimbursement on vehicle upkeep or other daily costs.
Offer a parking stipend through Compt
As we’ve mentioned, you can use Compt to manage all your reimbursements, including employee parking and other commuter benefits. It’s 100% tax-compliant, so you can spare your back office the headache. See how it works.
Editor’s Note: This post has been recently updated for clarity and relevance for our readers.
