Qualified Transportation Fringe Benefit Limits to Increase in 2026

The IRS has released Revenue Procedure 2025-32, which includes cost-of-living adjustments for employee qualified transportation fringe benefits for the 2026 taxable year, along with annually adjusted numbers for 2026 for other tax provisions.

The combined monthly limit for transportation in a commuter highway vehicle and a transit pass will increase to $340 in 2026, up from $325 in 2025.

The monthly limit in 2026 for qualified parking will also increase to $340 from $325.

Qualified Transportation Fringe Benefits

Section 132(f) of the Code allows employers to offer qualified transportation benefit programs to their employees on a tax-free basis.

Under these programs, employees may have money withheld from their taxable compensation to pay for or reimburse work-related expenses for qualified parking, transit passes and transportation in certain commuter highway vehicles (e.g., qualifying van pools).

Employers may also provide these benefits tax-free to employees.

Section 132(f) establishes a maximum monthly amount of qualified transportation benefits employees may exclude from their income, subject to cost-of-living adjustments announced by the IRS before the beginning of each calendar year.

Both employee pre-tax salary deferrals and employer-paid benefits, if any, count toward the maximum amount.

No Tax Deduction for Employer

Beginning in 2018, the Tax Cuts and Jobs Act of 2017 eliminated the employer tax deduction for qualified transportation benefits.

The employer deduction is disallowed regardless of whether the benefits are paid directly by the employer, through a bona fide reimbursement arrangement or through a compensation reduction agreement.

More Information

See the IRS News Release for information about the annual inflation adjustments for more than 60 tax provisions, including the qualified transportation fringe benefit.