When you have pre-tax commuter benefits, part of your paycheck goes into a pre-tax account used for commuting (parking, train, etc…). When you leave a company, willingly or not, the money left over in the pre-tax account goes back to the company, not to you, even though it came out of your paycheck.
What is the thought process behind this? I don’t get how your money goes back to the company and not to you.
In: Economics
Essentially, the idea is that to avoid paying income tax on that money, your company isn’t paying you. If they pay you and you pay the train company, then that’s income that needs to be taxed. If the company, essentially, gives the train company money, in agreement for you getting to ride for free, then you never got any money so there is nothing to be taxed. And if you and your employer just so happened to agree that your salary would be reduced if they did that, so be it. It’s a stupid loophole essentially that they codified into law, but that’s what it is. But under this legal fiction, it was never really your money.
Or, the even simpler answer: because Congress said so.
Latest Answers